Clients call for help when tackling IHT

This article is part of
IHT Research Report - November 2013

While the majority of adviser business may not be taken up with clients with inheritance tax concerns, the good news is that the area of mitigating the ‘death tax’ is one that consumers don’t feel confident tackling alone.

The rise of direct-to-consumer platforms and execution-only transactions has been weighing on advisers’ minds for the past couple of years, but according to the UK’s ‘GetAdvised’ campaign, just 27 per cent of consumers are confident in their ability to effectively reduce their IHT liability without professional advice.

Karen Barrett, chief executive of, the company behind the campaign, explains: “There are times when professional financial advice is essential in making life decisions that can have a considerable financial impact. When it comes to self-invested personal pensions, annuity purchases and inheritance tax planning, consumers clearly feel least confident in making DIY decisions.”

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The exclusive research carried out by Financial Times Publishing into protection and inheritance tax planning reveals a high number of people in the UK remain unaware their estate will be subject to IHT upon their death.

When asked what percentage of their clients, on first meeting, were unaware of the need to plan for inheritance tax (that is, they would be caught by the threshold), 30.41 per cent claimed up to 25 per cent and a further 25.77 per cent suggested between a quarter and half of their clients were oblivious that they would be caught in the IHT net.

Much of this can be put down to the dramatic rise in property prices and the yet-unchanged IHT threshold, which has sat at £325,000 for individuals and £650,000 for couples since 2009.

Interestingly, the majority of respondents (34.54 per cent) feel strongly that the IHT threshold should increase significantly in the 2014/15 tax year.

There are, of course, a number of tools available to limit the IHT liability and the research shows trusts and discounted trusts to be the preferred route for many advisers, with 72.2 per cent opting for this over alternatives such as enterprise investment schemes or AIM shares.

Regardless of the political decision of whether to increase the threshold, the fact remains that an increasing number of people are being caught in the net of the ‘death tax’ and are relying on advisers to seek out the best possible solution that results in as much wealth as possible being passed down to families and friends.


What is IHT?

IHT is usually paid on an estate when somebody dies. It’s also sometimes payable on trusts or gifts made during someone’s lifetime.

The tax is payable at 40 per cent on the amount over this threshold, or 36 per cent if the estate qualifies for a reduced rate as a result of a charitable donation.

Increased threshold for married couples and civil partners

Since October 2007, married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies – to as much as £650,000 in 2013-14.

Their executors or personal representatives must transfer the first spouse or civil partner’s unused IHT threshold or ‘nil rate band’ to the second spouse or civil partner when they die.