Tax tease: Britons waste £1.3 billion in IHT - really?

The website 'unbiased.co.uk' has released headline extracts from its Tax Action Report 2011 (prepared on its behalf by Purple Market Research).

I've chosen the IHT headline to debunk this week - although I admit I haven't seen the report itself. The press release containing the headlines is available online but not the report it seems ;-(

Apparently:

"Almost nine out of ten people have done nothing in the past 12 months to reduce the amount of [IHT] tax they pay"

My question is whether any of the people who responded to the question actually have an estate that would attract a liability to IHT? I suspect that it's a complete irrelevance to most of them and therefore the statistic is misleading at best.

We have to bear in mind that, according to official figures in the recent OTS report, IHT is expected to be paid on only around 12,000 estates out of 560,000 adult deaths (these are both 2009 figures). So just 1 in every 46 deaths gives rise to IHT.

Now it could be said that many more estates would have been subject to IHT if the deceased had not take steps to reduce or remove a liability. But the survey in question suggests that nine out of ten people have done nothing of the sort.

Let's assume that none of the typical 12,000 people who die leaving estates that typically pay IHT each year did anything to reduce their liability to the tax. This would mean that they represent the nine out of ten people noted in the survey. And that would mean that the maximum number of people who DID take any action or advice was just 1,333 a year. That can't be right. There are more than that number of people routinely advising on IHT and some of their clients must be taking action.

So the nine out of ten figure quoted above seems to be grossly misleading. I can't trace the origin of the £1.3 billion quoted in the press release but if it related to the typical 12,000 estates paying IHT, it would mean that every single one of them could have reduced their liability by more than £100,000. Seems unlikely to me.

I'm all for taking advice and planning to keep your IHT liability to a legal minimum. To the extent that you can do this it makes sense to do so - as long as you avoid contrived and risky tax avoidance schemes. But IHT is still not a mainstream tax and relatively few people will leave a big enough estate behind to pay IHT. So why worry about it?

Ok - that was a little flippant. The absolute number of people who could leave a chargeable estate behind is ever growing and there are plenty of opportunities to advise them how to keep their liability down. To this extent maybe the press release will do no harm. Maybe. What do you think?