The UK government is facing the mammoth task of balancing the books as we emerge from the global pandemic.
One of the most mooted UK policy ideas has been changes to inheritance tax.
But advisers know from past that policy changes can have significant implications to existing financial plans.
People are already worried about IHT as survey from advice network Openwork found more than half (52%) of over-45s in the UK are concerned about landing their families with an IHT bill because they have failed to take action.
Nearly one-in-three (31%) adults plan to make gifts of more than £5,000 ($6,268, €5,580) to children or grandchildren in the next five years, but worry about getting it wrong.
This gives advisers the opportunity to prove the value of ongoing advice as the political landscape rarely remains unchanged for long.
Realms of possibility
Finn Houlihan, director at ATC Tax, told International Adviser: “At the moment, there doesn’t appear to be any immediate changes to inheritance tax by the government, but there is precedence for the government to make changes to it during extraordinary times.
“After World War II, the existing allowance for inheritance tax was increased to 80% to accommodate for the implications of the thousands who lost their lives during the conflict.
“It is not out of the realms of possibility that the same will happen to help people who have lost loved ones due to covid-19, and advisers should start to prepare for some form of change.”
Rachael Griffin, tax expert at Quilter, said: “It is crucial that we simplify the IHT regime and improve understanding of it so that we can make the system easy to use and avoid such a huge percentage of people worrying about this tax.
“Financial advisers will need to watch carefully for any changes to the IHT regime come the Autumn budget and flex their client’s strategies to suit any changes.
“It is unfortunate that so many people are worried about IHT it does provide a good opportunity for advisers to show their value and help alleviate any worries for their clients.”
Reactive planning
With plans for IHT already in place, if changes are made what will it mean for the strategies that have been made?
Hannah Greenwood, managing director at Finsbury Associates, said: “Advisers will need to review the current plans that clients have in place to ensure that these are still suitable.
“However usually with tax legislation changes, planning tools that have been available and accepted previously e.g. trusts do not have retrospective tax law applied.”
Stuart Ritchie, director of wealth advice at AES, said: “A reduction to the seven-year gifting period or removal of the taper relief, for example, would have huge implications across the industry for plans already in place for clients.
“Of course, this is where clients will see the value of ongoing advice as advisers adapt to any changes.
“It will cause a period of adjustment, for example until the next tax year, where there will be many individuals looking to adapt to the changing environment.”
International implications
One of the main groups that could be affected by the IHT changes are expats.
There plans are more complicated especially with the international cross-border aspect to their finances.
Greenwood added: “I don’t believe UK expats will be impacted any differently unless the concept of domicile is removed in which case they may benefit from the changes.”
Houlihan added: “Many expats believe that they’re out of the scope of UK inheritance tax living abroad but this is not the case for most.
“Expats will need to keep in regular contact with advisers and be ready for potential changes to their situation, particularly if the government raises the existing allowance to deal with the economic fallout of the covid-19 crisis.”
