Plenty of life in death and taxes

There are many tax-efficient investments which aim to look after future generations in more ways than one, which are worth investigating as part of carrying out holistic estate planning for clients.

Few would argue these days about the growing need for inheritance tax planning. The latest figures from HM Revenue and Customs (HMRC) find the Government took almost £4.7bn in inheritance tax in the 2015/16 tax year.

That is the highest figure for inheritance receipts since the current system was introduced in 1986.

It is no longer a tax that targets only the very wealthy, either. The nil-rate band may have been frozen at its current level of £325,000 since April 2009, but the average price of a UK property has risen 33 per cent over the same period.  

With more people’s wealth invested in their property, it is little wonder the Office for Budget Responsibility (OBR) has found that the number of families paying inheritance tax is at a 35-year high, and 45,100 bereaved families are expected to face an inheritance tax bill in the 2016 to 17 tax year. 

The estate we’re in
Acknowledging the problem faced by a large number of homeowners, the Government introduced a new inheritance tax allowance in last year’s Budget.

Investors are almost certainly better seeking professional advice to select an investment manager with expertise in constructing a suitable inheritance-tax-efficient portfolio Paul Latham

The ‘residence nil-rate band’ can be claimed by the estates of people who die after 6 April 2017, and it will start at £100,000 per person – increasing by £25,000 every April until 2020, when the £175,000 maximum will be reached.

From April 2021, it will increase by inflation every year. 

Advice on estate planning is, perhaps unsurprisingly, rather popular. According to a recent survey from insurers Prudential, more than half (52 per cent) of advisers expect demand for inheritance tax advice to rise over the next 12 months.  

And there are a number of options that advisers can consider for their clients, which are outlined below:

Trusts and gifting
People usually set up trusts as a way to make sure assets are kept in the family over generations. They can be tailored to personal wishes too, which gives them much greater control over where their money goes. 

However, assets settled into certain types of trusts that are set up during a person’s lifetime also take seven years before becoming exempt from inheritance tax.