The warning from Mike Coady, Managing Director of deVere United Kingdom, follows the introduction of new allowances made by Chancellor George Osborne in the Summer Budget.
In July, the government announced a new £1m allowance for couples who want to pass on property wealth, plus an extra allowance for family homes in addition to the existing tax-free band from 2017, taking the total to £1m by 2020.
Mr Coady commented:
“Over the last couple of years, reducing the burden of inheritance tax has become an increasingly important priority for a growing number of families.
“This trend has come about for a number of reasons, but primarily because more and more people have been dragged into the inheritance tax net due to rising house prices, a recovery of household savings, and due to the threshold at which IHT is charged being frozen.
He added:
“However, despite being keen to cut IHT liabilities, many are likely to miss out on benefitting from the government’s new allowance if they don’t review their wills. This is because, as so often is the case, the devil is in the detail.
“Discretionary trusts, which have been the most popular trusts to date to minimise inheritance tax, are exempt from the new family home allowance because the property does not pass directly to the beneficiary or beneficiaries.
“For the family home allowance to be used, the property must be inherited directly by descendants, such as children, stepchildren or grandchildren. As such, those with discretionary trusts set up by families in order to leave property to children tax efficiently could potentially be missing out on a £350,000 per couple allowance from 2020.
“Therefore, I would urge anyone who could be affected to review and then possibly revise their wills.
“There are still a raft of bona fide trusts and other financial solutions, such as holding properties as ‘tenants in common’ with your spouse, investments that qualify for relief and gift allowances, that can help mitigate IHT.
“It is hardly surprising that people are typically eager to reduce inheritance tax, often described as ‘the most hated of all forms of taxation’. This is because leaving a legacy to loved ones is a very human instinct and people feel especially aggrieved by this form of IHT because it is, in effect, a form of double taxation as tax is being paid on assets which have already been paid for and previously taxed.”
