Inheritance Tax 

Need for IHT advice underestimated

Need for IHT advice underestimated

The number of over-45s seeking estate planning advice has risen sharply in the past year as many struggle to understand inheritance tax (IHT) rules, research has shown.

Canada Life’s 2019 IHT Monitor, conducted in December 2018, showed four in five (80 per cent) over-45s believe current IHT rules are too complicated, up from 77 per cent in the previous year.

More than two fifths (42 per cent) have sought professional estate planning advice as a result, increasing from 32 per cent in 2018.

However, about a third of over-45s admit they would take estate planning advice from their solicitor rather than a financial adviser, while a fifth would seek advice from family and friends.

The survey gathered responses from 1,002 UK consumers aged 45 or over with total assets exceeding the standard nil rate IHT band of £325,000.

When it comes to planning their estate, three in ten (28 per cent) are using their pension, 24 per cent are using Isas and a fifth are using a trust in their will.

Latest HMRC figures showed the number of family trusts declined from 200,000 in the 2003/04 tax year to 156,000 in the 2016/17 tax year after changes were made to they way they are taxed.

Neil Jones, senior technical manager at Canada Life, said current IHT rules were too complicated and the ongoing review of the system, initiated by the Treasury, had to ensure the system was made simpler.

He said: "The Chancellor’s review into the inheritance tax system is welcome, but his calls for simplification are long overdue.

"One of the most common misconceptions is that a person must have a certain estate size before it becomes worth their time consulting a financial adviser.

"In reality, people with estates valued at £250,000 would potentially benefit from seeking professional estate planning advice, just like those with more valuable estates."

The survey showed people were overestimating the size an estate needs to be to seek financial advice.

Two thirds (64 per cent) believed they needed assets of £350,000 or more to see a financial adviser.

However Canada Life stated the threshold in practice was closer to £250,000.

In January 2018, the chancellor ordered a review of the inheritance tax system by the Office of Tax Simplification to investigate whether the current rules create distortions to taxpayer decisions.

The chancellor has asked for proposals for simplification to ensure the system is fit for purpose.

Norman Stevenson, director of Cathedral Independent Financial Planning, said: "While we work with solicitors on estate planning, people should always go to a financial adviser for inheritance tax and wealth advice.

"Solicitors just don’t have the kit bag we have. Also, the government could bring in more rules or change them altogether, so it makes sense for people with assets below the threshold to take advice also."