A quarter of individuals aged 55 and over in Britain have not discussed their inheritance plans with family members, according to research by wealth management firm Mattioli Woods. This lack of communication raises concerns about increased inheritance tax bills and potential family disputes after a loved one's death.
The survey, conducted by YouGov, revealed that 35% of those aged 45 to 54 also have not discussed their inheritance. While 83% of those over 55 understand the importance of having a valid will, many still avoid these sensitive conversations, often citing discomfort or the belief that it is "too early" to discuss death.
This situation is particularly concerning as pension pots are set to become liable for inheritance tax starting in April 2027. Experts warn that the number of people not discussing inheritance plans is more than double the proportion of estates expected to be affected by this tax change. Currently, unspent pension pots are not included in inheritance tax calculations, but this will change under new legislation.
Inheritance tax is levied at 40% on estates exceeding a certain threshold. The standard allowance, known as the nil rate band, is £325,000 per individual. An additional residence nil-rate band of up to £175,000 can be applied if a home is passed to direct descendants, creating a potential tax-free allowance of £500,000 for an individual. Married couples and civil partners can combine unused allowances, potentially reaching a £1 million tax-free sum. However, the home allowance is phased out for estates valued over £2 million.
The Mattioli Woods survey found that only 15% of individuals over 55 are aware of the key inheritance tax allowance rules, and 35% are unaware that pensions will be subject to the tax from April 2027. Lawyers have also voiced concerns, with some characterizing the inclusion of pensions in inheritance tax as "fundamentally flawed" and potentially unfair to grieving families.
Amit Joshi, managing director of wealth at Mattioli Woods, highlighted the disconnect between the desire to pass on wealth and the understanding of how to do so effectively. He noted that avoiding these conversations can leave families unprepared during times of stress, potentially leading to uncertainty, disputes, and delays in estate administration. Financial planners suggest strategies like spending or gifting assets early to mitigate inheritance tax, utilizing the seven-year rule where gifts become tax-free if the donor survives for seven years.
Professionals at Step, a body representing inheritance professionals, have also warned that the tax changes could deter individuals from acting as executors due to potential complications for bereaved relatives, including delays and legal risks in settling estates.