Three quarters of wealthy Brits could face IHT issues: Canada Life

Three quarters of wealthy Brits face substantial inheritance tax (IHT) bills, as only 1 in 4 has have sought professional estate planning advice to ensure their families don’t pay more tax than required, according to the latest Canada Life IHT Survey.

The survey, conducted in September 2016 with more than 1,000 UK consumers aged 45 or over with assets exceeding £325,000 responding, found that more than a quarter don’t even have a will and many of those spoken to saying that they “do not need” such tools, Canada Life said in a statement announcing its findings.

The research found that over a quarter (27%) of those aged 45 or over, with enough assets to trigger a potential IHT bill, do not even have a will, leaving their inheritance plans unclear and meaning their wealth could pass to relatives they did not intend to provide for under intestacy rules.

Another simple and effective estate planning strategy is to gift money to relatives, Canada Life said, but just a fifth of respondents had done so with over half (51%) saying they don’t see a need.

One of the main reasons that simple estate planning tools are being ignored by people with enough wealth to benefit from them is “a lack of understanding”, that could be bridged by financial advisers, Canada Life said.

‘Lack of understanding’

“Far too many wealthy people do not view estate planning as important and risk leaving it too late, thereby potentially placing the burden of substantial bills on their loved ones, said Karen Stacey, head of technical services at Canada Life. “The lack of understanding about different inheritance tax planning tools and their benefits is a concern, and suggests not enough people are aware of the options for protection and passing on their wealth.

“There is also a perception that planning is too complicated and time consuming, which is not the case. Writing a will is an absolute must, while gifting money is incredibly simple. Even options seen as complicated, such as setting up a trust, can be very simple when consumers know who they want to benefit from their estate and get advice from a professional on how to achieve their objectives,” she said.

Most commonly used estate planning tools

(% of consumers that have used them)

Most unpopular estate planning tools

(% of consumers that have no intention of using them)

Writing a will73%Take out life insurance46%
Take out life insurance37%Setting up a trust40%
Gifting money21%Gifting money27%
Setting up a trust13%Writing a will2%

Source: Canada Life. Base: 1,001 UK consumers aged 45 or over with assets exceeding £325,000

According to Canada Life findings (see the above box), almost half (46%) of respondents said they would never take out life insurance as part of their estate planning. Nearly three quarters (72%) said they didn’t see a need to use life insurance.

Trusts were the second most unpopular strategy, with 40% saying they had no intention of using them. 19% said setting up a trust was too time consuming or complicated. A significant minority (13%) said they have used them.

Seeking advice

While just a quarter have already sought financial advice for estate planning, others are open to the idea of seeking advice in future. Whilst the majority (51%), would seek advice from a financial adviser, followed by a solicitor (34%); more than a quarter would rely on the internet or their own research (28%).

However, almost one in ten (8%) would not seek advice for inheritance tax planning from anyone.

43% of respondents expected to leave an inheritance of over £500,000, which exceeds the current individual IHT threshold and would lead those who fail to plan ahead with substantial tax bills for their families. Most people intend to leave their wealth to a spouse (60%) and/or descendants (59%). 29% would also leave an inheritance to other younger relatives, for example, nieces, nephews or grandchildren and 17% would leave money to charity.

‘End of tax year’

“With the end of the tax year fast approaching, acting now rather than later, could potentially reduce their IHT bill,” added Stacey. “There is a strong relationship between the lack of understanding of simple estate planning tools by the wealthy and the lack of take up of financial advice.

“The low use of even very simple estate planning tools shows the important role financial advisers have to play in educating potential clients on every aspect of the estate planning process.”

Canada Life Limited, a wholly owned subsidiary of Great-West Lifeco, which began operations in the United Kingdom in 1903 and looks after the retirement, investment and protection needs of individuals and companies alike.

The survey of 1,001 UK consumers aged 45 or over with total assets exceeding the individual inheritance tax threshold (nil rate band) of £325,000 was carried out in September 2016 by research firm  Atomik. Percentages may not add up to 100 due to rounding or multiple answer questions. 

Gary Robinson
Head of Video and Ezines at Open Door Media Publishing. Deputy Editor, International Investment. An experienced journalist and filmmaker with more than 20 years' financial services experience, both as journalist and originally as a fully qualified IFA, Gary works across both International Investment and InvestmentEurope titles. Previous video production credits include projects on BBC, C4 and SKY.

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