The Proverbial Elephant In the Room?





The Proverbial Elephant in the Room?

Inheritance tax (IHT) receipts are predicted to reach a staggering £10bn annually by 2030, almost doubling the current figures, according to analysis from leading financial institutions.

Basing the prediction on current revenue trends and assuming a continuation of the current regulatory environment, this comes as the nil rate band (one of the most important means of protecting an Estate from IHT) reaches its 10th anniversary of being fixed at £325,000.

As asset values particularly property increase rapidly but the nil rate band remains static, more people than ever are caught in the IHT trap.  Figures indicate that around 18% of Estates worth up to £1m are failing to put in place an IHT plan, even though there are options available within the existing rules to reduce an IHT bill.

Unfortunately discussing this kind of financial planning remains very much the ‘elephant in the room’ and many people are reluctant to discuss it, even with their financial advisers.   The consequence of this is that many families are paying hefty tax bills that proper planning could have completely avoided.  Being uncomfortable about discussing financial matters with loved ones can mean families lose out financially not only because of tax issues but also with family conflict and significant disputes over inheriting.

The most important thing to consider is making a Will.  A surprising number of high net worth high profile celebrities have passed away intestate.  This causes literally years of legal wrangling over their Estates, with the lawyers perhaps benefiting more than the deceased’s family.  The very idea that the law will decide how your Estate is distributed should be enough to motivate anyone to get their affairs in order.

In a recent survey taken by Censuswide it was noted that

24% of parents with adult children have talked openly to them about the issue of inheritance

30% of parents have talked to their family about their Will – only 36% have made their children executor of their Estate.

Although 36% of parents have made their children executors of their estate, only 11% of young people are aware that they are an executor.

Children assume their parents have made provisions with 19% saying their parents had no Will.  In reality 44% of parents don’t have a Will.

In the survey 62% of millennials would be unhappy, citing feelings of betrayal, jealousy or financial insecurity if their parents favoured their siblings by leaving them more in their Wills or left them out entirely.  Despite this 19% of parents admitted they are not planning to divide their estate equally amongst their children.

Most people admit to not understanding the principles of IHT.  IHT rules can be complicated, but there are a number of steps an individual can take to reduce or entirely avoid IHT provided they plan ahead.   It is worth giving some thought to this sooner rather than later to maximise control over your assets after your death.   Giving away money is one of potential solutions, since gifts out of regular income which are not deemed to affect the giver’s standard of living are IHT free on day one, as are certain smaller gifts. Investments in companies that qualify for business property relief is also recommended as these typically become IHT free after 2 years.    Investing in an AIM ISA will have a similar outcome.   It is important to be aware that all these actions have both positive and negative implications and so any decisions need to be carefully made.

However you decide to bequest your assets it is crucial that you speak to an experienced professional and impartial advisor to ascertain the best outcome for your loved ones.  Contact us now for the peace of mind that effective planning brings.