“Where an adviser can add value is where there is potentially a greater IHT liability, or where the clients’ circumstances are more complex, making a more bespoke approach far more relevant,” says Jason Ashman, financial planning manager at Henwood Court Financial Planning.
In these circumstances the role of an adviser is to help clients structure their finances in such a way that not only reduces or eliminates completely any future IHT liability, but as importantly does so without jeopardising the clients own standard of living during the remainder of their lifetime.
Some advisers use cashflow planning to see how this potential liability could be affected by greater or lower rates of investment growth, prolonged periods of inflation or the need the client may face in the future for financial help with long term care.
“Once you have stress tested a client’s finances you are only then in a position to start to consider IHT planning, starting with tax efficient wills, use of annual allowances and gifting strategies,” Mr Ashman suggests.
Jeremy Pearson, technical support manager at Canada Life, says advisers aren’t necessarily needed for much of the IHT process, but they can effect “a staggering proportion” if the client prefers their family to inherit their wealth rather than knowing that the taxman could take a large chunk of their hard-earned assets when they die.
“Interestingly,” he adds, “with the Retail Distribution Review, we now have the situation where an adviser can show a client that paying so much for IHT advice can potentially save them many more thousands in tax.”
Keith Thomson, director of investment services at solicitors and wealth management firm Blackadders, cautions that IHT planning is a specialist area and “advisers need to be sure that they are suitably qualified and understand the income tax, capital gains tax and inheritance tax rules thoroughly, as well as understanding the different types of trusts that can be used”.
He notes that while advisers may not be a specialist in certain areas such as creating suitable trust wordings, they will normally have a broad knowledge of all of the various aspects of IHT planning and will be able to advise the client on potential solutions from a holistic financial planning point of view.
But he says advisers “should refer clients to a solicitor or accountant, or both, to ensure that any IHT planning is effective and appropriate”.
Planning in this area could be a growth area for advisers, especially if RDR changes allow them to highlight the value of advice more directly. Data from research company So Here’s The Plan show that 61 per cent of advisers write just one to five IHT mitigation cases a year, with most at the lower end of this spectrum.