Higher Demand for Inheritance Tax Planning Advice

Advisers anticipate higher demand for inheritance tax planning advice as Government shakes up rules.

Professional advisers are anticipating higher demand from clients for inheritance tax planning advice in the wake of changes being made to inheritance tax thresholds that were originally announced in the Government’s July Summer Budget. Almost one in six (17%) advisers expect more enquiries about IHT planning as a result of the changes, compared to just 4% who expect fewer enquiries, according to advisers in a survey carried out by Canada Life.

The main change announced is the introduction of new nil rate band for family homes. This has recently come under fire from those who are concerned that it will be too complex to administer fairly, including Andrew Tyrie, Chairman of the Treasury Select Committee. The latest draft proposals are expected to be published at the same time as the Budget on 16th March.

Over a third (36%) of professional advisers expect their clients to benefit from the introduction of a new main residence nil-rate band. However, the new nil-rate band will not be available to those with estates worth more that £2.35 million, leading nearly a quarter (23%) of advisers to say their clients will not benefit from the new main residence nil-rate band.

In addition to the new main residence nil-rate band, the Summer Budget included an announcement that the nil rate band for IHT will be frozen at £325,000 for an extra three years – until 2021 – with advisers split about the overall impact of the combined package of changes on their clients. Almost one in ten advisers (9%) believe most of their clients will lose out from the Summer Budget changes, while a third (34%) believe most of their clients will benefit. The most common view among advisers was the 40% who said their client base would consist of a mixture of winners and losers from the changes.

Importance of estate planning

At the same time, the value of clients’ estates mean that more should consider estate planning to help make the most of their assets.

The average size of clients’ estates is £1.16m, far above the current individual threshold of £325,000 for inheritance tax and even above the £1m threshold announced in the Summer Budget*. Failure to consider estate and tax planning could mean clients leave higher than necessary inheritance tax bills for their beneficiaries.

Nine in ten (90%) of clients’ estates are worth more than £325,000: the current threshold, again highlighting the benefit of planning ahead even for those who might not consider it a necessity.

Sean Christian, Managing Director of Canada Life International, commented on the findings:

“The new family home allowance will be a natural starting point in the future for many advisers in guiding their clients on estate planning.  The potential complexity of new rules, particularly for those who have decided to downsize in later life, means that professional advice will be critical.

“The fact that the main nil rate band has not been rising in line with inflation and is being frozen for a further three years make this change all the more important as a growing number of families face potentially significant IHT bills. The combination of rising house prices and a stronger economy all mean that IHT will continue to be a challenge for many middle Britain families.

“Taken as a package, the changes are much less useful for advisers of high net worth clients, because the new allowance is not available for those with estates worth more than £2.35 million.

“There are a range of products and solutions to benefit families and it is important that advisers communicate this to their clients.”

The Probate Department said “Financial advice has always been important in IHT Planning.  But Legal Advice has a key role to play in setting out the route map for planning before financial advice is needed.”