Letting your heir down?

Letting your heir down? Britons are ignoring estate planning tools that could help them to pass on more of their estate to the next generation.

August 19, 2020

Over recent years, property inflation and rising asset values have combined to push a higher proportion of estates over the nil-rate band for Inheritance Tax(IHT). The residence nil-rate band helps to a degree, but with the IHT threshold frozen at £325,000 per individual, and government receipts still rising, to £5.4 billion per year in the latest figures[1], and £10billion by 2030 [2], IHT is not a tax just for the rich – or even moderately wealthy.

Despite the fact that more estates are paying IHT, there are ways to prevent families paying over the odds. For example, those with sufficient assets to trigger an IHT liability when they pass away could use the exemption which allows anyone to give away up to £3,000 worth of gifts each tax year without them being included in the value of their estate.

However, according to surveys by Canada Life, only a fifth of respondents aged 45 or over with assets worth more than £325,000 said they had gifted money [3],and over half do not know that ISAs are liable for IHT [4], which could result in their families paying more IHT than they need to.

Another way to minimise the impact of IHT is to take out a ‘whole of life’ insurance policy. This pays a lump sum on death, and when the policy is written in trust, the pay-out can help offset or eliminate an IHT bill. Yet nearly three quarters of those with a potential IHT liability said in the Canada Life study that they didn’t see a need to use life insurance, indicating an acute lack of understanding. [5]

The research also revealed that 77% of people think IHT rules are too complicated; yet only 33% have sought professional advice on IHT planning. Of those who sought advice, 42% wisely spoke with a professional financial adviser. [6]

Heir care

Whilst inertia and ignorance of estate planning is good news for the Treasury, which relies on it to ensure its tax receipts, the widespread lack of knowledge will worry many potential heirs. But taking the appropriate advice can go a long way to alleviating those concerns.

A financial adviser can help families with the transfer of wealth in an orderly and tax-efficient manner, establishing trusts, life insurance and so on, while also ensuring that the person who is arranging their estate has enough income to maintain their normal standard of living.

With the right advice, more estates could be removed from the grip of IHT and bereaved families could be spared the extra heartache of paying unnecessary tax.

“There is a strong relationship between the lack of understanding of simple estate planning tools by the wealthy and the lack of take-up of financial advice, ”says Karen Stacey, Head of Distribution Services at Canada Life.

“There is a perception that planning is too complicated and time-consuming, which is not the case. Writing a will is an absolute must, while gifting money is incredibly simple. Even options seen as complicated, such as setting up a trust, can be very simple when consumers know who they want to benefit from their estate and get advice from a professional on how to achieve their objectives,” she says.

“There are a wealth of solutions out there,” adds Neil Jones, Market Development Manager at Canada Life. “We’d urge people to consider meeting with a financial adviser,” he counsels. “The rewards for future generations can be enormous.”

 The levels and base of taxation, and reliefs of taxation, can change at any time. The level of any tax relief generally depends on the individual circumstances.

Will writing involves the referral to a service that is separate and distinct to those offered by St. James's Place. Wills along with Trusts are not regulated by the Financial Conduct Authority.

1 HMRC for tax year 2018/19, September2019

2 Canada Life, April 2019

3, 4, 5, 6 Canada Life: survey of 1,001UK consumers aged 45 or over with total assets exceeding the individual Inheritance Tax threshold (nil-rate band) of £325,000

3, 5 Survey conducted: September2016

4, 6 Survey conducted: October2017


For any queries relating to the information contained, please contact a Financial Adviser at Blythswood Associates who would be happy to help.

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