The downside is that they can be higher risk investments and not normally suitable for older people. They can be illiquid and the underlying manager fees can be high. An AMC of 2.5 per cent to 3 per cent is not untypical and if held over 20 years that could seriously erode value.
Life cover is a useful consideration that can also help. It is possible to put in place whole-of-life insurance written on a joint-life, second-death basis with the sum assured written in trust outside the estate. This can cover the IHT tax costs, meaning properties do not necessarily have to be sold to allow a quick settlement of probate and leaving beneficiaries time to make sometimes difficult decisions. Later-life cover can be expensive, which is why advisers need to consider all strategies and the particular circumstances of each client.
As part of the estate planning process a good adviser will also check that wills and powers of attorney are in place and up to date and that beneficiaries have been appointed to pension assets. They will obviously also remind clients that their circumstances can change and tax treatments too – so regular reviews are highly advisable.
In conclusion, clients need to be wary of focusing too heavily on ducking an IHT bill, taking unnecessary risks and incurring costs in the process. That said, there are plenty of ways a good adviser can help reduce the impact of IHT on a client’s estate.
Ned Francis is a chartered financial planner at James Hambro & Co
We all have a nil rate band when it comes to inheritance tax.
Each individual has an annual exemption of £3,000 worth of gifts they can make each tax year.
An alternative strategy is investing in assets that qualify for business relief.