It may be getting tiresome to hear that Brits are not tackling inheritance tax, but data confirms the situation isn’t getting any better.
Property fund provider Time Investments surveyed 55 IFAs and found 58% of investors aged over 50 have not asked them for IHT advice.
This is despite the fact that receipts from inheritance tax are set to increase to £6.9bn ($8.9bn, €8.1bn) in 2023/24 from the record £5.4bn in 2018/19, according to UK government forecasts.
Barriers
The Time survey found advisers believe there are several barriers to investors seeking advice about inheritance tax planning.
Over half (57%) cited poor understanding due to the complexity of IHT, while 46% said client uncertainty over how much money is required to provide for the rest of their life.
A reluctance to discuss death (44%), the perceived cost of advice (31%) and negative perceptions around some tax planning vehicles (28%) were also stated as reasons to avoid discussions.
Henny Dovland, IHT expert at Time Investments, said: “Estate planning and wealth transfer should be seen as a positive step in helping younger generations, rather than something that is difficult to talk about.
“Our research shows, there is a real opportunity for advisers to educate and inform their clients about the benefits of effective tax planning.”
Death benefits
It is not just clients who can be stumped by challenging issues, as even advisers struggle with complicated topics.
Over half of the technical queries received by self-invested personal pension provider Curtis Banks from advisers in the last month have concerned death benefits.
It said that although rules on death benefits can be very flexible and tax efficient, they can be “incredibly complex”.
The firm admitted that this has been an ongoing issue for advisers and not a one-off spike in queries over the past month.
Topics
Adviser questions cover a wide range of topics; including detailed explanations of when beneficiaries’ drawdown is available, minors inheriting death benefits, tax implications in varying circumstances and lifetime allowance charges.
Clients are requesting further clarity on how they can use ‘expressions of wishes’ forms to pass on their wealth in a way that they want to.
Examples of queries from advisers include the following:
- Can a beneficiary pass unused funds onto their own beneficiaries when they die?
- Does a beneficiary need to be 55 to take income in beneficiaries’ drawdown?
- Is it still possible to use a trust to give benefits to a spouse first and then children afterwards?
Key area
Jessica List, pensions technical manager at Curtis Banks, said: “The number of queries received on the subject of the death benefit rules is disproportionately high.
“It is such a key area now, with so much complication within the rules and variation between different providers, that advisers want to be confident that they’ve covered all bases in each individual case.
“There are high profile examples in the national press of what can happen when things go wrong – from long drawn out disputes through to detrimental tax implications for the beneficiaries – and advisers don’t want to risk their clients being caught out.
“The current rules can be extremely generous for beneficiaries, but this level of complexity and consequences seem an unnecessarily high cost to pay.”
