Only 26 per cent of high-net-worth individuals have inheritance tax mitigation strategies in place, despite 45 per cent being worried about the financial stability of the next generation.
A survey by Arbuthnot Latham found online demand for IHT reduction strategies rose by 13 per cent with more than half of HNWs including their children in future planning discussions.
To support HNWIs with maintaining their families’ financial wellbeing, Arbuthnot Latham has highlighted key steps to communicate with the next generation about inheritance.
One of the ways HNWIs can mitigate tax liabilities when planning for the future is lifetime gifting.
Rachel Wyatt, wealth planner at Arbuthnot Latham said: “Some gifts can be made each tax year, and immediately fall outside your estate for IHT purposes, provided they qualify and are made outright.
“These include an annual gifting allowance of £3,000, gifts of up to £5,000 from a parent to a child upon marriage or civil partnership, and regular gifts from excess income.
"You can also give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.
“Gifts in excess of these allowances will only be tax-free if you live for seven years after making the gift.”
Wyatt highlighted that trusts can be a “powerful tool” for giving gifts to chosen beneficiaries.
“Certain trusts offer an excellent way to reduce the amount of taxes loved ones pay when receiving an inheritance as well as providing safeguards on how your beneficiaries can access your gift. A wealth planner can guide you through the intricacies of trusts and help you navigate this practical wealth management approach,” she added.
Wyatt also believed pensions were an important wealth planning tool and said seeking professional financial advice was key for HNWIs to ensure their estate planning strategy was designed to meet their needs and goals.
According to Wyatt, purchasing protection could also provide a cash injection to cover some, or all, of the IHT bill, or any other costs associated with death.
“It is important to review your cash flow forecast to assess how much money you might need to maintain your lifestyle, consider future long-term care needs, and how you might use any surplus efficiently,” she said.
Wyatt felt business relief also presented an opportunity to incorporate tax-efficient planning into a HNWIs overall strategy.
She added: “Putting in place strategies to reduce inheritance tax now will ensure the wealth of future generations. However, to enable them to maintain this wealth long-term it’s important that families discuss the transfer of wealth and ensure the next generation has expert guidance sooner rather than later.
“Many people feel uncomfortable talking in any detail about inheritance and too often it’s not discussed. The danger with this approach is that no-one achieves their desired outcomes.”
alina.khan@ft.com
