Two in five consumers confused by inheritance process

New research reveals widespread confusion among UK consumers about what happens when they inherit, with many unclear on the basics of inheritance tax (IHT), probate, and how to access help during the process.

A survey of 2,000 UK adults conducted for The Estate Registry found that 39% do not understand what happens if they inherit, rising to 57% among those under 35.

Despite the political debate surrounding IHT, 42% believe they have nothing to inherit, while a third (33%) think the tax only affects the wealthy. However, 28% of respondents say they are “very worried” about potentially having to pay IHT.

TAX IMPACT

The latest figures from HM Revenue & Customs show that in the 2021–22 tax year, just over 4% of UK deaths incurred an IHT charge – less than one in 20 estates.

But the number of estates liable to pay IHT continues to rise, driven in part by surging house prices.

That year, IHT receipts totalled £5.99 billion, with 27,800 estates paying tax – an increase of 3% on the previous year. The average bill came in at £215,000, with liabilities ranging from £13,500 on a £300,000 estate to £3.91 million on a £10 million estate.

The tax impact becomes particularly acute for estates around the £1 million mark.

A £1 million estate incurs £155,000 in IHT, which jumps to £325,000 for a £1.5 million estate. Almost a third of taxed estates (9,230) fall within this band, highlighting the growing relevance of IHT for middle-class families.

DIFFICULT TO NAVIGATE

A separate panel of 200 financial advisers and probate solicitors highlighted growing dissatisfaction with the system. Over 60% said the process takes too long, and a quarter found it difficult to navigate.

Many backed the idea of making more information publicly accessible. There was also strong support for inheritance advance loans – products that could provide liquidity to pay IHT upfront, helping beneficiaries avoid penalties and breaking the catch-22 of needing to pay HMRC before gaining access to estate funds.

Phil Hickson, senior vice president for global partnerships at The Estate Registry, — Phil Hickson, The Estate Registry

Phil Hickson – SVP, Global Partnerships at The Estate Registry said that more needs to be done to explain the probate process, and develop tools that support those dealing with an inheritance.

He added: “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.”