Hugi Clarke, director at Foresight Group, said people may have overestimated the "government’s generosity" with the changes being made to inheritance tax.
From 6 April there will be a residence nil rate band of £100,000 on family homes which will sit on top of the existing nil rate band of £325,000.
When this was announced in 2015, then-chancellor George Osborne said there would be “no more inheritance tax on family homes” but Mr Clarke said this was misleading.
While he welcomed the change, he pointed to the fact that even with this measure, the amount of inheritance tax the government will collect will increase in the coming years.
Mr Clarke said: “There are a number of individuals with a significant inheritance tax problem who may fall into the trap of thinking it is solved by this change.
“The fact of the matter is inheritance tax receipts are predicted to be one of the fastest growing receipts and there is a danger people will misunderstand just how far this allowance goes.”
To emphasise his point Mr Clarke pointed out that the allowance – which will increase to £175,000 in 2020 – would struggle to cover the value of property in parts of the UK.
After 2020 the allowance will increase every year in line with inflation measured by the Consumer Prices Index, rather than house price inflation.
Mr Clarke said: “The change doesn’t do enough to catch up. The current inheritance tax allowance was put in place in 2009 and if you look at what has happened since then, the FTSE was at around 4,000 and it is now at around 7,000.
“Meanwhile residential property has grown in value. Just to keep pace with the growth of assets we would need a nil rate band of £535,000.”
Mr Clarke said advisers should be thinking about business property relief.
He said Foresight had recently launched a product which used business property relief and insurance against an individual’s early death to provide inheritance tax relief within the first few weeks of a client’s assets being invested.
Figures published by HM Treasury earlier this month showed inheritance tax receipts will reach £6.2bn in 2022, despite chancellor Philip Hammond’s pledge not to introduce a “death tax”.
This is an increase of more than 30 per cent on inheritance tax receipts in 2016 to 2017.
Martin Dodd, director of Wolverhampton-based Midlands Investment Agency, said: “Anywhere from the Midlands down, there are a lot more people who are going to have an inheritance tax liability and it is certainly increasing dramatically.
“Business property relief has its place but there are two issues with it. Most people are not aware of it enough but also many solutions expose people to risk.
“If you are asking someone to take more risk as they get older that’s almost counter-intuitive to what most people would want to do.”
damian.fantato@ft.com
