Inheritance Tax: 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.

Inheritance Tax Trap

Basing the prediction on current revenue trends and assuming a continuation of the actual 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 the ‘elephant very much 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 could be avoided entirely proper planning.

Being uncomfortable about discussing business 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.

Making a Will

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 years of legal wrangling over their Estates literally, 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 spoken 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.

Principles of Inheritance Tax

Most people admit to not understanding the principles of IHT. IHT rules can be complicated, but there are many steps an individual can take to reduce or entirely avoid IHT provided they plan. 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 the potential solutions since gifts out of regular income. The regular income is not deemed to affect the giver’s standard of living is 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 two years.

Investing in an AIM ISA will have a similar outcome. It is essential to be aware that all these actions have both positive and negative implications, and so decisions need to be carefully made.

However, you decide to bequest your assets; you shall speak to an experienced professional and impartial advisor to ascertain the best outcome for your loved ones. Contact us, and we will arrange a free 30-minute telephone consultation for you.


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