Britons fail to plan for inheritance tax

Britons are set to lose out on nearly £1.3bn this year as a result of poor inheritance tax (IHT) planning, according to new research.

Unbiased.co.uk, the professional advice website, said its latest annual Tax Action Report found that UK taxpayers are set to waste £13.5bn in unnecessary tax payments in 2011, with IHT representing 10 per cent of the overall figure.

The largest area that Britons are losing out is in tax credits, with over £8.5bn being wasted through people failing to claim their child benefit, child tax credits, working tax credits and pension credits.

According to Unbiased.co.uk, nearly nine in ten people have done nothing in the past 12 months to reduce the amount of tax they pay.

“Our 2011 Tax Action Report reveals that vast sums are being paid unnecessarily in inheritance tax every year because the deceased had not made adequate provision,” said Karen Barrett of Unbiased.co.uk.

Experts warn that more individuals are now at risk of paying IHT as a result of the government’s freeze of the annual exemption limit at £325,000 for four years.

Last month, the Office of Tax Simplification (OTS) - set up by the chancellor to recommend whether a list of 1,042 tax reliefs should be abolished or modified - proposed that a “proper review” of IHT should take place.

This could include a review of tax take, with the OTS stating that this would enable reliefs to be evaluated and either repealed, simplified or increased in line with inflation.

But Britons can still make use of a number of simple IHT planning strategies including using their annual exemption, small gift exemption and regular gifts out of surplus income.