UK taxpayers are becoming more ignorant not less about inheritance tax, and industry watchers say government clarity on IHT and some basic education can’t come soon enough.

Half of over-45s in the UK who are liable for IHT (those holding total assets above £325,000) are still unaware that their main residence may be subject to inheritance tax. This is one grim finding from Canada Life’s 2019 report card on IHT monitoring in the UK.

The percentage of UK residents confused about inheritance tax on the property they own has risen in the last year from 36 per cent to 50 per cent, and the confusion does not stop at property ownership, the financial services poll shows.

A further 62 per cent do not think that their pension savings are subject to IHT, up from 57 per cent a year ago.  An even larger two-thirds do not believe that owning agricultural land qualifies them for IHT.

The survey of a thousand UK consumers aged 45 and-up and subject to IHT was conducted in December 2018, three months after the Office for Tax Simplification (OTS) published recommendations to simplify IHT.

The level of confusion amid the general population will fuel further calls to clear up UK tax laws. Chief among OTS recommendations is the need for IHT to go digital – a change that would help financial advisers and clients.

But if results here are any judge, basic tax education is sorely missing. The majority (71 per cent) of over-45s liable for IHT do not know at what threshold they are taxed (£325,000). There is persistent confusion around the nil-rate-band and at what rate above this allowance assets are taxed. It is 40 per cent, but more than half respondents do not know this.

Deeper in the thickets, just one in ten over-45s are aware of what the taxable rate is when a person leaves at least 10 per cent of their estate to charity. This is currently set at 36 per cent. Further, less than three in ten know the annual exemption rate they are entitled to (this is up to £3,000). Watchers say the industry is in danger of losing sight of the main goal -- enabling people to pass on as much wealth as possible to future generations.

A lack of knowledge about inheritance tax risks “destabilising” estate planning and disrupting plans for people to pass on their wealth, said Neil Jones, senior technical manager at Canada Life.

“Inheritance tax rules have been too complicated for too long. The government’s pledge to simplify the administration of IHT is a step in the right direction, but more needs to be done to simplify the rules and educate the general population about their nuances,” Jones said.

This newswire regularly highlights surveys revealing wider population failings to grasp IHT implications and, often, gaping deficits in financial literacy as a whole. Often missing in follow up is where government and financial planners need to step up, especially given the numbers of UK citizens liable for hefty IHT duties on property price surges alone.

As previously reported, various efforts are in play to get the nation more financially clued up. The UK’s “Talk Money Week” is one example, designed back in 2015 to get people talking about their finances in the hope that more candid money conversations will have a knock-on effect on how best to manage it – across generations, from pocket money to pensions to estate planning.

The initiative chooses an annual theme that focuses stakeholders such as banks, charities, educators, and advisors on ways to encourage more people to seek free debt advice, save money, avoid using credit for everyday spending, and critically expose more young people to a sound financial education.

Quilter’s corporate affairs director Jane Goodland says campaigns like this break down taboos about discussing money matters that have lingered for generations.

“With things like power of attorney, debt and inheritance among the topics that people feel are out of bounds,” a coordinated national effort is critical. “Government and the industry need to do more to encourage people to talk about their finances. A greater take up of financial education in schools may help break the culture of taboo around money and help the population feel more capable of tackling financial issues,” she said.

Arguably none sits more uncomfortably than estate planning. Penny Lovell, chief executive of Sanlam UK private office says inheritance is difficult and emotional but too serious to ignore.

“Conversations about passing down wealth should be tackled early, so everyone in the family is clear how much will be left. Lovell says financial advisors can help support this process as they very often know members of the same family and will have an understanding of family finances.

“In many cases, financial advisors can provide an objective, third-party view as to how wealth should be passed down and managed more successfully.”