Two in five consumers don’t understand inheritance rules

New research conducted on behalf of The Estate Registry found that out of 2,000 UK consumers questioned, 39% don’t understand what happens if/when they inherit something, rising to 57% for those under the age of 35.

The data also showed that 42% of UK adults believe they have nothing to inherit, so any planned future changes to IHT won’t affect them. A third (33%) agreed that inheritance tax is only something that affects the rich but in contrast, 28% are ‘very worried’ about paying any future inheritance tax bill. 

Statistics from His Majesty’s Revenue and Customs (HMRC) in 2024, for inheritance tax liabilities show that in the tax year 2021 to 2022, more than 4% of UK deaths resulted in an IHT charge which means that IHT is payable on fewer than one in 20 estates. However, the same HMRC report shows that the total number of UK deaths that resulted in an IHT charge has increased.

Inheritance tax receipts for the tax year 2021 to 2022, were £5.99 million, with 27,800 taxpaying IHT estates, which is an increase of 800 (3%) from the previous tax year. The increase is undoubtedly linked to a rise in average house prices. Of the 195,000 estates that were notified and the 27,800 who were liable to pay tax, the average tax bill was £215,000. These range from a £13,500 liability for a net estate value of £300,000 up to a £3.91 million liability for an estate of £10 million.

The value of the liability leaps significantly for estates around the £1 million mark. The total tax liability for an estate worth £1 million stands at £155,000; but this figure more than doubles for an estate valued at £1.5 million (to £325,000). Almost exactly a third (9,230) of those impacted by IHT fall into the £1 million to £1.5 million bracket, presenting a very real headache for those who need to settle what’s owed.

In the same Quantitative and Qualitative Research programme, a panel of 200 independent financial advisors and probate solicitors were also questioned as regards their views of IHT and the probate process generally. Some 61% believe the whole process takes too long, and 25% say that the process is difficult to understand. A fifth (21%) believe the process could also be made simpler if there was more information made publicly available; 18% believe the process is unfair.

In terms of IHT specifically, all agreed that an advance of cash against the inheritance in order to pay HMRC directly would be advantageous. It would resolve critical cash flow issues by providing immediate liquidity for inheritance tax payment before probate is granted. This would break the common deadlock where HMRC must be paid to obtain probate, but estate funds are inaccessible until probate is granted.

Solicitors also agreed that an inheritance advance loan would help beneficiaries to avoid HMRC penalties and interest charges, which can be substantial for high-value estates that don’t have liquid assets.

Phil Hickson, SVP, Global Partnerships at The Estate Registry said “Much better signposting is needed to steer consumers to the help available in explaining how the process works,” he says, “and in finding solutions to settling an inheritance tax bill that doesn’t only affect the rich.”