Poor understanding of inheritance tax is 'a timebomb'

Just one in ten Scots would give 10 per cent of their estate to charity, despite new rules offering an inheritance tax (IHT) discount if they do so, research suggests.

Many people are still unaware of the amount of their estate that can be passed down to their beneficiaries without incurring a 40 per cent IHT charge, according to a survey conducted by Turris Wealth Management.

It said 90 per cent of the Turris Consumer Group - a panel of 40 people aged between 25 and 60, in full-time employment and from a variety of income groups - could not say exactly where the IHT threshold currently lies (it is 325,000), or correctly identify the level of tax levied on the estate above that level (currently 40 per cent).

Brian Steeples, managing director at Turris, said the low level of understanding suggested many faced what he called an "inheritance tax time-bomb".

He said: "IHT is a minefield and you need to set your estate up to minimise a future tax penalty on your beneficiary. A family trust, for example, is a good way to do this but you must seek advice."

But despite the threat of paying 40 per cent IHT, just four of the 40 members surveyed said they would consider donating 10 per cent of their estate to charity, even though they knew they would qualify for a 10 per cent discount on their IHT bill.

Steeples said: "The common denominator in our survey is that there is much work to be done to clarify misunderstandings in relation to taxation and how it will affect consumers going forward and underlines the need for professional advice."

New pension rules coming into force today will make it easier to avoid buying an annuity, and 15 per cent of those surveyed by Turris said they were now more likely to stay invested for as long as they could.

However, 70 per cent said they would not be affected by the pension changes taking effect today - including a drop in the annual contribution allowance from 255,000 to 50,000 - and would not alter their existing arrangements.