Confusion could be costing British families thousands of pounds according to new research from Norwich Union.

The study reveals one in five of those likely to be liable for Inheritance Tax (IHT) have no idea they will have to pay the death duty.

It also revealed that over two-thirds had “partial or no understanding” of what IHT actually is. In fact, only 16 per cent were able to correctly identify the threshold.

This lack of understanding is leading to ‘Inheritance Tax Inertia' – where Brits are so confused by the system and their options that they take no action at all.

As a result, a large majority of families could end up paying larger tax bills than they need to when their relatives pass away.

Nicholas Burton, senior marketing manager for Norwich Union comments, ‘IHT is not just for the super rich – many of our customers are mystified by the current system and as a result are not taking action or leaving things too late. Even with current fluctuations in the housing market, people still need to be aware that property can easily push them over the threshold.

To help rectify this Norwich Union is rolling-out a number of new (IHT) measures in the coming months to simplify estate planning.

Its new offering will help educate consumers about the options available to them and guide them through the process more easily.

While the vast majority of people opt to make a will, currently only 18 per cent of those questioned said they would consider an annual gift and just one in five plan to put money into trusts.

Burton adds, ‘Estate planning is traditionally one of the most complicated areas of financial planning, with many consumers being alienated by the jargon and technical information available to them. The aim of our new initiative is to help simplify the process for consumers. We hope that this will enable them to plan more effectively and reduce their tax bill.’

Further reading:

Effective IHT planning
Don't delay IHT planning
Video: How to become more tax efficient