IHT among top concerns of wealthy Britons

There has been speculation around inheritance tax (IHT) in recent months amid possible changes to the current rules or even abolition of the unpopular tax.

Fewer than 4% of estates pay IHT, but among those who may be liable it is the number one financial concern, according to new research.

IHT was cited by over a third (35%) of those surveyed by RBC Wealth Management (part of the Royal Bank of Canada), up from 27% a year earlier.

Gifting and other financial concerns

Other top financial concerns of wealthy Britons included gifting without losing control or giving too much too soon, and not knowing how much is enough to maintain their lifestyle in later life.

Changes to the capital gains tax rate were also cited as a top concern, particularly among male respondents and those in pre-retirement (aged 55-65).

The research involved 600 respondents with a minimum of £500,000 in investible assets.

"The survey results point to the wealthy re-evaluating later life priorities and wealth stewardship, a trend likely prompted by the UK's uncertain political and economic future, which could potentially alter the future landscape of intergenerational transfers," commented Nick Ritchie, senior director of wealth planning at RBC Wealth Management.

Ritchie stressed the importance of establishing a financial plan -- and regularly reviewing it.

IHT receipts on track for new record

The UK government collected £6.3bn in IHT receipts in April 2023 to January 2024, according to HMRC figures published in February.

This is £400m higher than in the same period last year as long-term house price growth and frozen thresholds drag more families into the net. And it suggests that the total for the full year may well exceed last year's record IHT take of £7bn.

By 2027/28, the Office of Budget Responsibility has predicted that IHT will raise £8.4bn.

Rachael Griffin, tax and financial planning expert at wealth management company Quilter, said that with inheritance tax receipts on track for another record-breaking year, the UK government is "likely to leave it well alone".

"Though higher house prices and frozen thresholds have seen more people caught by the IHT net in recent years, ultimately, it impacts relatively few families but brings in a tidy sum to boost government coffers which it will be unwilling to relinquish -- particularly if other tax cuts are on the table."

'Unexpected bill from the taxman'

"Regardless of sentiment towards inheritance tax, our research shows that a quarter of over 55s (25%) do not know if their estate will be taxed," said Canada Life tax and estate planning specialist Stacey Love. "In short, a complex system plus housing market buoyancy and frozen thresholds could mean more households receiving an unexpected bill from the taxman.

"There are legal means to mitigate paying inheritance tax though, such as the use of trusts and gifting. Rules around gifting and trusts are nuanced, however, so seeking professional financial advice to help you navigate the system is a good idea."