A knowledge gap among high net worth individuals (HNWI) on tax allowances is leaving them vulnerable to tax changes and leading to allowances not being used to their full potential, Charles Stanley has warned.

The firm, which is part of Raymond James Wealth Management, found that 49 per cent of HNWIs either do not fully understand, have not heard of, or do not know what the capital gains tax (CGT) allowance is.

This figure rises to nearly two thirds (65 per cent) among those who do not receive financial advice, highlighting the gap when it comes to understanding the allowance.

Just 37 per cent of HNWIs said they were making the most of the CGT allowance, while 32 per cent felt they could take advantage of the allowance but were unsure whether they were or not, 12 per cent said the allowance did not apply to them, and 12 per cent believed they did not make the most of it.

Charles Stanley found a similar lack of understanding and usage when it came to inheritance tax (IHT) allowances.

Almost two thirds (65 per cent) of HNWIs said they either did not fully understand it, had not heard of it, or did not know what the nil-rate band allowance, and 60 per cent said the same about the residence nil-rate band.

A further 41 per cent of HNWIs did not fully understand or know what the tax relief was when it came to charitable donations and 52 per cent were not making the most of the relief available.

Other tax allowances HNWIs admitted not knowing or understanding included business relief (50 per cent) and the annual gifting allowances (49 per cent), while 54 per cent and 59 per cent were not making use of the allowances respectively.

“The Chancellor’s Budget draws closer and is poised to be one of the most consequential fiscal events this year,” said Charles Stanley director of financial planning, Harry Bell.

“With a fiscal gap estimated at as much as £35bn, rumours are circulating over what tax rises or reforms could be made to help deliver a strong economy. This inevitably brings a prospect of higher taxes and a sharp squeeze on consumers, and for higher earners it could have a more considerable impact on their finances.

“What this requires is for individuals to ensure they are prepared, understand, and make the most of what tax allowances and reliefs are available to them.

“Employing these into wealth strategies can go some way to help preserve and protect wealth for the long term. Crucially, the value of advice and financial planning cannot be understated here.

“Not only can advisers support clients with achieving their financial goals, but can help make the most of tax-efficient vehicles and allowances to create and maximise a more secure financial future.”

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