Why are so many of us unaware we have an Inheritance Tax liability?

The majority of people have no idea what amount of Inheritance Tax (IHT) will be payable when they die, a recent study conducted by Time Investments has observed. According to the survey conducted earlier this year 52% of Britons aged 55 and above did not know what their IHT tax bill would be [1]. The Inheritance Tax rate stands at 40% and HM Revenue & Customs received £5.2bn in tax receipts in 2019-20 [2], which raises the question why are so many of us unaware of the tax and oblivious to the fact it can so easily apply to us? 

Introduced in 1986, the Inheritance Tax rules have undergone numerous changes and amendments. The most recent significant change saw the introduction of the Residence Nil Rate Band (RNRB) in 2017. Where property is left to direct descendants (children, grandchildren and stepchildren), the RNRB can see a further £175,000 fall outside of the value of an individual’s estate for IHT purposes. The goal of this change was to effectively raise the Inheritance Tax threshold to £1m for married couples and civil partners under certain conditions.  

On the face of it, this appears to be a generous threshold, however those without direct descendants are unable to use the Residence Nil Rate Band. The standard Nil Rate Band means there is normally no IHT to pay if either the value of the estate is below the £325,000 threshold or the deceased leaves everything to their spouse or civil partner, a charity or other relevant organisations. 

There is a general perception that the Inheritance Tax rules apply only to the very wealthy but with house prices coming to the market rising to an average of £338,447 in England, Wales and Scotland many of us may be shocked to learn just how easily our estate can fall within the threshold for Inheritance Tax [3]. In the Chancellor’s budget, Rishi Sunak announced the IHT thresholds will be frozen until April 2026. Previously, the thresholds were expected to rise in line with inflation. This raises the concern that as ‘real’ prices rise over time, powered by a red-hot property market, more and more families will find their estates are valued over the thresholds.  

Another barrier preventing people from confronting their IHT position lies within the complicated rules surrounding this area of tax. Navigating the rules can be a daunting task; we always advise individuals to seek professional guidance where unsure. There is also a perception that Inheritance Tax mitigation strategies must involve complex solutions, for example with the use of trusts. Whilst such approaches can be useful for the right individual, often simple strategies such as writing a Will, making use of gifting exemptions and retirement allowances can make a big difference.  

At Castlefield we provide holistic financial planning and can help individuals mitigate or eliminate any potential tax payable on their estate. If you think you may benefit from a consultation with a Castlefield financial adviser we can advise on strategies in this area; we typically begin with a financial ‘health check’ to help set goals and assess what actions you may need to take to achieve them.  


Please note that this communication does not constitute taxation advice. Should you require taxation advice please speak to a taxation specialist or accountant. Any personal advice in respect of taxation is not regulated by the Financial Conduct Authority. Any taxation rates and allowances referred to in this document are understood to be correct at the time of publication but may be subject to change at short notice. We therefore cannot be held responsible for the implications of relying on this information. Further information about taxation rates, allowances and protections are available at https://www.gov.uk. TNIHTMO/23072021 


[1] https://time-investments.com/the-growing-need-for-inheritance-tax-planning/ 

[2] https://www.ft.com/content/3fa8dd80-f32e-4274-b4e7-badaec4830f4  

[3] https://www.theguardian.com/money/2021/jul/19/frenzied-buyer-activity-drives-house-prices-to-new-high