One of the best sources of new business is your existing clients and if they are estate planning clients, regular reviews are needed because people’s inheritance tax (IHT) problems tend to only get worse.
Now, not an awful lot of things remain at the same rate as 2009. If we turn the clock back to 2009, it is revealing:
- Gordon Brown was Prime Minister
- Alistair Darling was Chancellor
- The FTSE 100 suffered its worst ever year – dropping to 3512 on 03/03/2009 following the global financial crisis
- A pint of beer cost £2.05
- In January 2009 petrol cost 87.2p a litre on average
- The average house cost was £179,363
- A loaf of bread was 65p
But some things resolutely don’t change. On 6 April 2009 the IHT nil rate band (NRB) was £325,000 and guess what it still is. Under successive Chancellors of the Exchequer there will be no amendments to IHT bands until 2021.
If you were writing IHT business back in 2009, we know that for chargeable lifetime transfers, a client’s NRB renews every seven years – so any IHT business you wrote back in 2009, or earlier, has now dropped out of the client’s estate. They now potentially have a new NRB available – albeit it’s still £325,000 – and ‘potentially’ because some clients may already have made further gifts using up some, or all, of their new NRB.
But the question is, are you making the most of this opportunity to help your clients mitigate future IHT liabilities?
Looking at the information from the Office of National Statistics, a client (male or female, in normal health) who is currently 50 years old could feasibly use five NRBs before they die; someone at 65 could use three NRBs; and even someone who is currently 80 could use two NRBs. If we assume, on a worst case scenario, that the NRB remains frozen at its current level of £325,000, it would allow a wealthy 50-year-old client to remove £1,625,000 from their estate, saving £650,000 in IHT. This makes it a highly tax efficient solution.
The NRB has been frozen since April 2009 and, in the majority of cases, the value of a client’s assets will have continued to increase be that in the value of their home or in the value of investments so, despite them thinking they had mitigated their IHT liability back in 2009, they may be surprised, or horrified, to discover they still have a substantial liability.
Here is the opportunity for you. Why not look through your client records for 2009 and before and see who used up some or all of their NRB at the time, for a flexible or discretionary trust? They must have had a potential IHT liability at the time, so possibly still have one.
Being seven years older, their minds may be even more focused on the iniquities of IHT and how the taxman is going to get a large chunk of their estates. HMRC have just announced record IHT receipts and, even with the introduction of the residence nil rate band (RNRB) next year, the problem is not going to go away.