17 April 23

The estate planning advice opportunity is growing

The estate planning advice opportunity is growing

As rising inheritance tax receipts increase the need for estate planning strategies, Triple Point explains why advisers should consider recommending investments that use Business Relief for inheritance tax exemption.

Inheritance tax receipts are still on the increase, meaning more grieving families are being left with a large tax bill to pay. In March, the Office for Budget Responsibility (OBR) revised its estimates for future inheritance tax intakes. It now expects the projected inheritance tax take between 2022-2023 and 2027-2028 will increase from £42.1 billion to £45 billion. The OBR also confirmed more estates are being caught by inheritance tax. By 2027-2028, an estimated 6.7% of deaths (roughly 47,000 individuals) will trigger an inheritance tax charge, up from 4.1% in 2020-2021.

Frozen tax thresholds have a sting in the tail

One of the major factors behind this increase is that the nil-rate band – the amount every estate can pass on to beneficiaries without being charged inheritance tax – has been frozen for well over a decade. Between 2000 and 2009, the nil-rate band was increased annually, rising from £234,000 to £325,000. However, it hasn’t been increased since and there’s no likelihood of it being raised any time soon. In 2021, then-Chancellor Rishi Sunak used the Budget to announce a freeze until 2026. And in his 2022 Autumn Statement, Jeremy Hunt extended this to April 2028. According to PwC, had the nil-rate band risen with inflation since 2009, the threshold would be well over £478,000.[1] If some clients feel aggrieved their estate has an inheritance tax liability, this suggests they have a point.

Higher house prices have increased estate values

More than two decades of rising house prices have also helped lift a greater proportion of the UK population into the inheritance tax bracket. For a while, the residence nil-rate band was expected to help more families to keep their family wealth free from inheritance tax. Introduced in 2017, the residence nil-rate band can increase the value of a person’s estate excluded from inheritance tax from £325,000 to £500,000 (or from £650,000 to £1 million for a married couple/civil partnership). However, the residence nil-rate band can only be claimed if the family home is left to direct descendants (children or grandchildren), and the allowance that can be claimed is reduced where the total value of the estate is more than £2 million.

Given inheritance tax receipts are still on the increase, it seems the number of people capable of claiming this additional tax relief is lower than expected, and that for many clients, existing thresholds are too small to cover the total value of their estate, particularly when including other assets, such as investment portfolios.

 Estate planning strategies

While most advisers will be familiar with the use of gifting, settling assets into trust and arranging whole of life policies as useful estate planning strategies, there is a fourth option that is gaining traction. Business Relief has been an established part of UK tax legislation since 1976. If a client owns shares in a company that qualifies for Business Relief, those shares become fully exempt from inheritance after a holding period of just two years, provided the shares are still held at the time of death. That’s a much shorter timeframe than using trusts or gifting large sums, which usually takes seven years before achieving 100% inheritance tax exemption. The added benefit for clients is that their money is invested, which means it remains in their control throughout their lifetime, before being passed on free from inheritance tax upon their death.

Straightforward solutions from Triple Point

Although we don’t provide investment or tax advice, here at Triple Point we think that Business Relief can play a critical role in estate planning conversations, particularly among clients with larger inheritance tax liabilities.

However, tax treatment can be complex! It depends upon the individual circumstances of an investor and can be subject to change – for example, tax reliefs always depend on underlying companies maintaining their qualifying status. To help you navigate these complexities, we offer a range of estate planning support for advisers, including CPD-accredited tax planning webinars, digital tools and examples of suitability reports for your clients. Contact your local Triple Point Business Development Manager for more information.

[1] https://www.express.co.uk/finance/personalfinance/1594250/inheritance-tax-iht-low-income-threshold-tax-allowance

Tags on this post: adviser education, estate planning