Opportunities for advisers in the hastened great wealth transfer

The pandemic has lent a new urgency to this process. With house prices rising and the freeze to inheritance tax thresholds, there may never have been a timelier opportunity for advisers to tackle the great wealth transfer.

The stamp duty holiday and new agile working initiatives, with concurrent demand for more space, have sent house prices rocketing.

Almost 40,000 new 'property millionaires' were created in 2019 alone, yet house prices have risen a further 10.2 per cent in the year to March 2021, the fastest rate of annual growth for 14 years.

While most estates will benefit from £1m in tax exempt amounts (the £325,000 nil rate band and the residence nil rate band of £175,000, doubled for a couple), the combination of house prices and a strong recovery in the markets means many more estates will now be subject to inheritance tax.

This is already having an impact.

Advisers can preserve wealth for the next generation, building stronger ties with new, younger clients.

Indeed, HM Revenue & Customs reported that inheritance tax receipts for April and May 2021 were 54 per cent higher than the same two months in 2020.

These numbers are likely to climb further in the coming years, given the recent freeze to the IHT allowances. While assets gain in value – or simply rise in line with inflation – the exempt amounts stay static, bringing more and more estates into the IHT net.

With government finances still recovering from the pandemic, this is unlikely to change.

However, in spite of this policy shift, our research shows that many clients still aren’t expecting to face a hefty IHT bill, and don’t fully understand how the freeze might affect their financial plans.

The advisers we surveyed expected the IHT freeze to affect one in three clients, but estimated that only 11 per cent of them understood that it could raise their IHT bills.

Seize the moment

One of the biggest challenges with estate planning is getting clients to recognise it as something they should be thinking about, and it can be a difficult topic to bring up.

This makes the IHT freeze a vital moment for advisers. Rising house prices and frozen rates should add a new impetus to discussions around wealth transfers, but the recent policy change provides a natural opportunity to raise the issue and start making them aware of potential solutions.

The benefits are clear for the families involved, as effective planning will ensure more wealth is passed to the next generation. However, it is also a significant opportunity for advisers.

Estate planning is one of the best tools to engage the family of existing clients, who may be at the start of their financial planning journey and could become the next generation of clients.

If not, there is a much greater risk that the beneficiaries choose to go elsewhere when they eventually receive their inheritance.

The process can also be revealing and can help build a more holistic picture of all a clients’ assets, which may help advisers deliver better, more comprehensive financial planning.

For example, estate planning is often done in conjunction with the transfer of other assets (the sale of a home or business), which can often result in advising on new assets.

This makes it a win-win-win situation for advisers. There is the opportunity to add significant value to clients at a time when they are at risk of not achieving their goals.

Advisers can preserve wealth for the next generation, building stronger ties with new, younger clients. It adds value for clients and for financial planning businesses.

Nick Bird is head of strategic growth for Octopus Investments