Inheritance TaxNov 22 2016

IHT special report: Giving thought to gifts

  • Gain an understanding of the gifting opportunities
  • Grasp the concepts of Business Relief and Agricultural Relief
  • Be able to describe the benefits of using EIS for IHT mitigation
  • Gain an understanding of the gifting opportunities
  • Grasp the concepts of Business Relief and Agricultural Relief
  • Be able to describe the benefits of using EIS for IHT mitigation
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IHT special report: Giving thought to gifts

Gifting assets is still an under-recognised way of mitigating inheritance tax, but it requires careful consideration. Craig Rickman reports.

The rapid rise in UK house prices has meant younger generations have increasingly had to rely on the ‘Bank of Mum and Dad’ to get onto the property ladder. But figures published last month suggest many of those parents are still failing to realise just how they can best pass on wealth through the generations.

HM Revenue & Customs statistics showed a record £4.65bn in inheritance tax (IHT) was paid in the 12 months to 6 April 2016 – a 22 per cent rise on the previous year’s figure.

The fundamental reason behind this trend is the continued surge in the value of UK residential property. According to Rightmove, the average property asking price has risen from around £230,000 in December 2010 to almost £300,000 as of December 2015.

In contrast, the IHT nil-rate band (NRB) has been fixed at £325,000 over the same period. It’s easy to see why many more estate beneficiaries are now being subject to the 40 per cent tax charge. 

Consumer challenges 

While IHT dominates many advisers’ thoughts when it comes to helping clients make investment decisions in retirement, the data makes it clear that retirees themselves may not yet be quite so ready to pay attention. 

“Some people don’t want to face up to their own mortality – so advisers have the difficulty of just getting people to focus on it,” says Jessica Franks, business line manager at Octopus Investments. She suggests many consumers refuse to forfeit assets ahead of time in case they subsequently require them for later-life care. 

“They’ve spent 50 years building up a nest egg and are worried how they will survive if things take a turn for the worst,” Ms Franks adds.

This view is shared by Belinda Thomas, partner and head of sales and investor relations at Triple Point. Ms Thomas acknowledges: “The main challenge is one of awareness around the available options in the market. This is coupled with investors being generally unaware of the potential impact of IHT on their estates.”

The generation game

Gifting assets is seen by some as the most effective method of reducing the value of an estate, but this is not without its complications and obstacles. Careful consideration should be given before taking this action as poor decisions can be heavily penalised.

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