According to research from Time Investments, published yesterday (November 7), 58 per cent of consumers aged 50+ who use an independent financial adviser have not discussed the best way to handle inheritance tax with them.
This is despite the fact receipts from IHT in the UK are set to increase from the record £5.4bn in 2018/19 to about £7bn in 2023/24, according to government forecasts.
IHT bills have been rising steadily since 2009/10 when the government froze the nil-rate band at £325,000. As the band hasn’t adjusted with inflation, more and more estates are falling into the net of IHT.
According to Time Investments IFAs thought there were several barriers to investors seeking advice around their IHT planning.
It polled 55 advisers in August and found more than half (57 per cent) felt poor understanding from investors due to the complexity of IHT was behind the trend, while 46 per cent thought their clients were unaware of how much money was required to provide for the rest of their life.
Other reasons included a reluctance to discuss death, with 44 per cent of advisers finding this a barrier to discussing IHT, while the perceived cost of advice and negative perceptions around tax planning also featured at 31 per cent and 28 per cent respectively.
Henny Dovland, Time Investments’ IHT expert, said: “Estate planning and wealth transfer should be seen as a positive step in helping younger generations, rather than something that is difficult to talk about.
“Our research shows there is a real opportunity for advisers to educate and inform their clients about the benefits of effective tax planning.”
Bharat Chudasama from advice firm Tudor Franklin said IHT planning was a “notoriously complex” area and one where quality advice and appropriate investment solutions could “make a real difference”.
He said he encouraged all his clients to think about wealth transfer sooner rather than later as part of their investment and savings planning.
Sarah Drakard, IFA at Cruze Financial Solutions, said she understood why IHT advice could seem costly therefore off-putting to clients due to the complex nature of the UK tax regime and the subsequent time it could take advisers to correctly work out IHT liabilities and appropriate advice.
However, she added: "That upfront cost could potentially save hundreds of thousands off a tax bill. I find client knowledge of how their assets will be dealt with at death is often misinformed at best and there’s lots of myths and wrong information passed around.
"It’s crucial to get professional advice which usually pays for itself in benefits long term."
Mr Dovland said there were a number of areas to consider when planning for IHT, including passing cash to family members before the seven-year gifting limit, setting up a trust, or investing in shares that qualify for business relief.
Most shares on the alternative investment market — smaller and younger companies which carry more risk in investment terms — qualify for business relief. This means the funds invested in the shares are exempt from IHT after two years.
In August advisers were urged to speak to their high-net worth clients about protection, and in particular life insurance, as part of their IHT planning because a life insurance lump sum payout can cover an entire tax levy.
For example, if a client who has a £3m estate took out a £1,200,000 life insurance policy (written in a trust to their beneficiaries) then although the taxman would still demand about £1m in IHT from the estate, the insurance plan would pay out the £1.2m, sufficient to pay the tax.
imogen.tew@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
