Row of tin toys in front of door
Partner Content by Octopus Investments

The estate planning landscape in 2021

The decision to freeze inheritance tax thresholds until 2026 may not immediately appear to be headline news, but it is set to have a major impact on many clients. Jessica Franks of Octopus Investments explains why and how advisers can help.

The 2021 Budget announced freezes to the nil rate band and residence nil rate band. They’re set to remain at current levels until at least 2026.

That means the nil rate band has been frozen for about a decade now at £325,000. The residence nil rate band is set at £175,000. Where there had been the potential for these to be raised in line with inflation, both will remain static for at least the next five years.

With rising asset values, especially rising property prices, it’s inevitable more estates will exceed their available allowances. In fact, the freeze could affect as many as one in three (31%) clients, according to a survey of financial advisers from Octopus Investments - almost double the number (17%) of advisers felt would be impacted by a similar freeze to the pensions Lifetime Allowance (LTA). 1

Thankfully, estate planning is an area where advisers can add significant value for clients.

Uncertain times

This is a key moment to look at how you can maximise client outcomes and offer peace of mind.

However, the ongoing challenges of the pandemic have caused some clients to feel even more uncertain about their mortality and how much money they’ll need access to in the future.

It might even a put client off the idea of planning for inheritance tax (IHT). Often because clients wrongly assume making lifetime gifts is their only option.

That’s where investments that qualify for Business Property Relief (BPR) can really help unlock client conversations. Even if the client ends up going down a different route.

The benefits of BPR

BPR offers two significant advantages. Speed and access.

Once a BPR-qualifying investment is held for two years it becomes zero-rated for IHT. The client must hold the investment until death, at which time it should pass on free from IHT. 

In return for making a higher risk investment, clients can benefit from a two-year clock which is significantly shorter than the seven years typical for gifts to become fully exempt. 

Because the client is making an investment, it also means they can request access to their capital at any time. This is, of course, subject to liquidity being available. 

Feel confident recommending BPR

Business Property Relief is more than 40 years old and has stood the test of time. It’s been supported by all governments in place during that time and, although changes have been made to it, they have all been to broaden its scope and make it more generous, rather than to limit its use.

One of the key things to remember with BPR is that it’s an investment. When approached with this mindset, it tends to make a lot of sense to advisers. After all, they are used to assessing investments first and foremost. The approach to BPR should be no different – it’s about building up your knowledge of the investments, working with providers and asking questions.