Only 48% of people are aware of the upcoming changes to inheritance tax and pensions, new research from Hargreaves Lansdown shows.
When asked if pensions are going to become subject to inheritance tax, 45% said they did not know and 7% said this was false.
Awareness was greater amongst men, with 54% of men aware the changes were happening, versus 42% of women.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “There’s a hidden horror in our pensions that could have a big impact on our families but less than half of us are aware of it.
“It’s a tax that is currently only paid by around 4% of families, but the inclusion of pensions will open it up to a lot more, and potentially leave them facing a nasty surprise bill.”
Morrissey said that 86% of additional rate taxpayers are aware of the incoming change, compared to 58% of higher rate taxpayers and 45% of people paying tax at basic rate.
Morrissey said: “Additional rate taxpayers are likely to have other assets and pensions that could push them into inheritance tax-paying territory. It’s also worth saying that the huge property price increases that we’ve seen in recent years could push many more families closer to the brink and, with the addition of pensions to the mix, could tip them over into paying IHT that they wouldn’t have paid previously.”
Morrissey said people should familiarise themselves with the rules around IHT as well as the rules around gifting that help reduce an inheritance tax bill.
Gifts of any value leave your estate for inheritance tax purposes after seven years. However, there are also further allowances that mean you can give money away and it leaves your estate immediately. These include the £3,000 annual allowance, gifts to loved ones getting married and the £250 small gift allowance.
Morrissey added: “It’s important to be aware of these looming changes but not let worry push you into making action that you later come to regret. With this in mind, it’s really important that you don’t give so much away that you potentially leave yourself short of cash later on in life, when you still might need it.
“Any gifting plan should give yourself room to manoeuvre should you find yourself needing care later in life for instance. You don’t want to be in a position where you need to ask loved ones to return money at a later date.”
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