Ten million British households now face inheritance tax

Ten million British households (which is also the same as more than 2 families in 5 or 41%) now face Inheritance Tax. This figure has jumped from last year’s 1 in 3 households or 34%.

Furthermore, Scottish Widows’ research shows Brits plan to give away £103billion to family and friends merely in an attempt to avoid death duty.

At present Inheritance Tax takes 40% of the value of everything passed on to family and friends over £285,000. However, you can give £250 away to an unlimited number of people as well as up to £3,000 in any given tax year and all of these are exempt. Furthermore if the person donating the cash lives for 7 years after making any other ‘absolute’ gift, this will also be covered by the exemption.

More people have become liable for this tax, in part due to a rise in house prices.

Scottish Widows tax expert Anne Young thinks it is very important to consider whether you are likely to leave behind a large tax bill for loved ones to deal with- a scenario becoming more common, since this tax now affects almost half the country.

With more people being affected by this tax, they are starting to react with 43% either already taken action (or about to) towards mitigating this bill.

44% (1.2million Britons) are determined to give money away to loved ones in advance of their death, with the average amount estimated to be £86,000.

Research shows that almost a quarter of people receiving cash ‘gifts’ intend to clear their own debts with the money. In such a case, these people would clearly not be in a position to also pay inheritance tax.

Scottish Widows suggests trusts as an alternative means of  averting  inheritance tax and say 4 in 10 look into this option.

On the down side of this, 24% (that is 1 in 4) are unsure of putting their money into trusts especially since the Finance Act of 2006 came into force changing the way trusts are taxed. Still, Ms Young believes that this is an option well worth considering and says that despite people’s uncertainty about them they prove an ideal tool to cut down or save towards an inheritance tax bill and assures us that they are in fact quite straightforward.