Millions of over 55s unaware if they will be taxed – check if you’re affected

Pensioner couple looking at documents

Around four per cent of estates currently pay inheritance tax

Temi Laleye

By Temi Laleye

Published: 23/03/2024

- 04:00

Rising house prices and frozen thresholds means more and more families are unexpectedly being caught in the inheritance net, forced to pay thousands to HMRC

Around 5.2 million over 55s do not expect their estates to get taxed upon death, however, millions are caught off guard each year and left to pay thousands, new research shows.

Inheritance tax is a tax on the estate (the property, the money, and possessions) of someone who has passed away.

Almost three in 10 UK adults (28 per cent) believe their estate will be taxed upon death, and a similar number - one in five (22 per cent) - are worried about the prospect of this.

New research from Canada Life showed that when it comes to planning to leave an inheritance, ensuring that the correct people benefit from one’s estate (19 per cent) was the top concern.

This was followed by current or future care expenses and the impact this has on their estate (13 per cent).

The same proportion (13 per cent) were concerned about being able to leave a financial legacy at all, and openly discussing this with family members to avoid misunderstandings (also 13 per cent).

Inheritance tax estate with sign

The standard inheritance tax rate is 40 per cent above the £325,000 threshold


Stacey Love, tax and estate planning specialist at Canada Life, said: “Whilst inheritance tax currently affects around four per cent of estates, house prices have increased significantly over the past 30 years or so, and the various tax thresholds remain frozen until 2028 at the earliest.

“If you have any uncertainty as to whether you’ll be caught in the inheritance tax net, it’s worth thinking about your overall wealth including the current value of your home.”

The standard inheritance tax rate is 40 per cent. It’s only charged on the part of the estate that’s above the threshold of £325,000.

There’s normally no inheritance tax to pay if either the value of one’s estate is below the £325,000 threshold or they leave everything above the £325,000 threshold to their spouse, civil partner, a charity or a community amateur sports club.

People can pay inheritance tax at a reduced rate of 36 per cent on some assets if they leave 10 per cent or more of the ‘net value’ to charity in their will.

Ms Love continued: “Our research also shows that, in the past five years, more than a quarter of beneficiaries (28 per cent) received an inheritance directly from a trust or as a combination of a trust distribution and a bequest from an estate.

“Choosing the right trust as part of your financial estate planning strategy is not only about managing any tax liability, it is also an appropriate way to control who benefits from your estate, to what extent they can benefit and at what age.

“Ultimately, estate planning is about putting your affairs in order, to help make the lives of your loved ones easier.

“While it might feel like an uncomfortable step to take, it is important to start planning ahead and consider speaking with a financial adviser to take advantage of opportunities which may be available to mitigate any inheritance tax as well as future-proofing your estate planning for the next generation.”

If there’s a will, the executor of the will arranges who will pay the inheritance tax. If there isn’t a will, it’s the administrator of the estate who does this.

IHT can be paid from funds within the estate, or from money raised from the sale of the assets.

It must be paid by the end of the sixth month after the person’s death. If it’s not paid by then, HMRC will start charging interest.

Britons can reduce or avoid inheritance tax in a number of ways.

There's a tax-free allowance, and people can also gift away a certain amount of their money during their lifetime, tax-free and without it counting towards their estate.

Other gifts are potentially tax-free (known as potentially exempt transfers or PETs) depending on when they were made.

Gifts given less than seven years before you die may be taxed depending on:

  • who you give the gift to and their relationship to you
  • the value of the gift
  • when the gift was given

Gifts include:

  • money
  • household and personal goods, for example, furniture, jewellery or antiques
  • a house, land or buildings
  • stocks and shares listed on the London Stock Exchange
  • unlisted shares you held for less than 2 years before your death]

Other reliefs, such as Business Relief, allow some assets to be passed on free of Inheritance Tax or with a reduced bill.

For more information, people can visit the Government website.

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