There are methods to reduce tax when the times comes and many people are using them, according to new research
More than a quarter of affluent savers have taken steps to reduce a future Inheritance Tax (IHT) bill, according to new data.
Cash gifting is leading the way, Paragon Bank research has revealed. Paragon’s survey of more than 2,000 active savers with balances in excess of £50,000 found 28% had taken active steps to cut their IHT exposure, with 68% of those opting to gift cash.
Other common measures affluent savers are taking to reduce their IHT bill include increasing spending on their lifestyle (37%), setting up a trust or other legal structure (27%) and establishing charitable contributions from their estate (23%). Additionally, 16% had gifted an asset, such as property or land.
The research showed that of those who gift cash, a third (33%) give up to £3,000 per tax year, helping to stay within the annual gifting allowance. Meanwhile, a quarter (24%) have given single cash gifts in excess of £3,000.
More than a quarter (27%) of those giving cash in excess of the annual gifting allowance have given between £3,000 and £10,000, while 19% have gifted between £10,000 and £25,000 as a one-off sum. A third (30%) have given between £25,001 and £100,000, with more than one in 10 (14%) gifting over £100,000.
Of this group, 38% said they were concerned about the seven-year gifting rule, although 3% said they were unaware of the rule. When asked who they had gifted to, almost half of respondents said they had given cash to their children (48%), a quarter said they had gifted to grandchildren (25%), 19% to other family members and 15% said they had made cash gifts to charity.
Paragon said the findings suggested many savers were choosing to act sooner rather than leaving wealth planning until later life. Almost half of respondents (48%) said they had looked into IHT rules as part of their financial planning, “underlining a proactive approach to managing their finances and minimising tax liabilities”.
Despite taking money out of their estates, most lifetime gifters appeared comfortable with the decisions they were making. More than four in 10 (44%) said they were not at all concerned about running out of money later in life, while a further 44% said they were not very concerned. Just over a tenth (12%) said they were a little concerned.
Overall, most respondents held a negative view of IHT, with almost two-thirds (61%) saying it was unfair and should be changed. Just one in 10 (11%) said it was a fair way to tax wealth.
Andrew Wright, head of savings at Paragon Bank, said: “As Inheritance Tax rules continue to evolve, many people are taking practical steps to safeguard their wealth for future generations, whether that means gifting cash, reviewing their wills or putting structures in place to manage how wealth is passed on.
“What is particularly striking is that those making lifetime gifts are largely doing so from a position of confidence. Most do not feel concerned about running short later in life, which suggests they are planning carefully and acting with purpose rather than simply reacting to future tax liabilities.
“Even with that willingness to act, IHT remains an area where many people still lack confidence. The rules can be complex, so it is important that savers take the time to understand their options and make decisions that are right for their long-term financial position, their families and the legacy they want to leave.”
