Receiving an inheritance is a life event that generates a mix of emotions. New research has shown that worry is a common one, as the inherited wealth prompts many people to think about their own estate planning.

The research, based on a YouGov survey of more than 2,000 UK adults, revealed that for 29% of people, receiving an inheritance was the main life event that would prompt them to seek financial advice.¹ This figure jumped to 49% for those whose household income was in excess of £80,000. Buying a property and retirement planning came second and third, respectively, as reasons for people to seek help.

In addition, respondents to the survey said that Inheritance Tax and investing were the two topics most likely to unnerve them. It’s little surprise therefore that receiving an inheritance is the most common trigger for people to seek advice.

Voluntary tax

And they have good reason to be concerned. It is estimated that UK families could save a combined total of around £595 million every year by taking some simple steps to reduce Inheritance Tax (IHT)². Something as simple as ensuring that life insurance pays into a trust, not into the deceased’s estate, could significantly stem the flow of tax revenues pouring into Treasury coffers.

Figures released by the Office for Budget Responsibility suggest that the government is on track for the highest annual intake of IHT in history. The OBR forecasts that £4.6 billion will be raised in IHT revenue in the 2015/16 tax year³ – double the amount collected in 2009/10. More worryingly, the OBR data also reveals that the number of families paying IHT has increased by over 160% in that period.⁴

Even though IHT regularly appears at the top of the ‘most disliked taxes’ list, many people still fail to plan their estate properly. In doing so, they are handing over money voluntarily to the government.

Research suggests that this is because many people remain unaware of how much they can do to reduce their own IHT bill, or because they prioritise other areas of tax planning instead.²

Putting aside the stories about morally indefensible tax avoidance, there are some perfectly legitimate ways to preserve the wealth that you have worked hard to build and want to pass on to your family. Ensuring you have an effectively-written Will in place is an imperative, but lifetime gifts, trusts and charitable giving can all play their part.

Effective tax planning is not about avoiding tax – it simply means making full use of the allowances and exemptions that are available.

¹ Boring Money Spring Census, April 2016

² Unbiased TaxAction Report 2016

³ Office for Budget Responsibility, Economic and fiscal outlook, March 2016 http://cdn.budgetresponsibility.org.uk/March2016EFO.pdf

⁴ Office for Budget Responsibility, Economic and Fiscal outlook, March 2016: Supplementary fiscal tables http://budgetresponsibility.org.uk/download/economic-and-fiscal-outlook-supplementary-fiscal-tables-march-2016/ and Inheritance Tax: Estates notified to HMRC, July 2015: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/449284/Table12-1.pdf

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Will writing involves the referral to a service that is separate and distinct to those offered by St. James’s Place. Wills and trusts are not regulated by the Financial Conduct Authority.