Almost a third of adults are planning to use inheritance to fund their retirement despite 23% being unaware of the Inheritance Tax (IHT) charge if assets are over £275,000, claims investment manager Brewin Dolphin Securities.
Results of its second annual National Inheritance Survey reveal 27% of those expecting an inheritance are relying on it to fund their retirement, with 60% of these claiming a collapse in pension expectations as the reason for relying on inheritance.
Although more than 81% of Britons are contributing to a pension, around 16.7 million people across the UK are expecting a 30% shortfall in their pension fund when they retire.
This shortfall could be down to IHT as Brewin Dolphin says those planning to use an inheritance to fund their retirement could receive less than anticipated, with 23% of adults not aware assets are subject to 40% tax if they are over the IHT threshold of £275,000.
Meanwhile the survey, conducted by TNS, reveals of those planning to leave an inheritance, 60% are failing to take advantage of ways to minimise the impact of IHT by not conducting tax planning.
With the Government receiving more than £3bn through IHT last year, Brewin Dolphin recommends people look into establishing family trusts and transferring assets within a family to try and mitigate IHT, as well as considering specialised products and portfolios designed to be IHT free.
The company claims the problem of relying on an inheritance is compounded by inadequate pensions planning, with 71% of people with pensions saving, not increasing their contributions following the removal of dividend tax relief for pensions in 1997, which increases the likelihood of most savers facing an even bigger pension shortfall.
Charlotte Black, marketing director at Brewin Dolphin, says it is concerned millions of people are unaware of how hard the are going to be hit with an IHT bill.
She says the lack of awareness about the relatively small tax free threshold, combined with the 40% charge will come as a nasty shock to an increasing number of families with modest assets, and as a result Brewin Dolphin is calling on the Chancellor to redress the situation in his Budget on 22 March.
Black adds: “Our research reveals the majority of the population favours a more equitable system with the IHT threshold index-linked to house prices. Property prices have increased by 160% since 1997, but the IHt threshold has not kept pace. If the Government had increased the IHT threshold in line with house price increases since 1997, it would now be around £500,000.”
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