The subject of inheritance feels like it’s everywhere at the moment. We now have a date for the upcoming Budget – the 26th November - and with it more frenzied speculation about whether the Chancellor will turn towards Inheritance Tax in order to boost the public finances.
That comes after changes to the IHT regime in the last Budget, bringing in a wider range of assets such as unspent ‘defined contribution’ pension pots when considering the size of an estate, a move which is only going to push up the size of the IHT bills estates face once it comes into force in 2027/28. Further changes to the system have led to protests on the street from farmers, while regular people look to take evasive action to keep their money away from the taxman.
Meanwhile, we have the latest data from the Treasury confirming that - yet again - IHT receipts have hit new record highs, a trend which looks likely to continue once last year’s changes take effect. Even TV is getting in on the act, with Channel 4’s The Inheritance, a new reality show that seems aimed at the same market as The Traitors.
Perhaps then it’s unsurprising that inheritance, and specifically Inheritance Tax, is becoming a more prominent element in later life lending decisions.
The IHT equation
One of the benefits of a lifetime mortgage, which can be easily overlooked, is its ability to reduce the eventual Inheritance Tax bill by essentially bringing forward the inheritance itself.
By releasing equity, clients can provide financial gifts to children or grandchildren - making use of the annual IHT-exempt gifting allowances - at a time when that support can make the greatest difference, for example, helping them onto the housing ladder, funding education, or supporting a new business venture.
Doing so means they not only get to see the impact of their legacy during their lifetime, but they also reduce the eventual value of the estate. This can have a double benefit in terms of Inheritance Tax for high-net-worth clients, not only lowering the actual value of the estate but potentially keeping it below the threshold at which the Residence Nil Rate Band starts to taper away.
Inheritance Tax is already a deeply unpopular levy, and one that many people want to sidestep entirely. Given the expansion of the tax to cover undrawn defined contribution pensions and death benefits on the way, the drive to keep the eventual liability as low as possible is only going to grow.
Of course, later life advisers may not necessarily be tax experts, so it’s important that clients are guided towards specialist support before making these decisions.
Flexibility that fits around clients’ lives
Utilising a lifetime mortgage as part of long-term estate planning is just one example of how the greater flexibility of the products has opened up new uses. That flexibility means the products better suit the varied needs of borrowers, too.
Interest reward options also mean borrowers can secure a discounted rate if they commit to monthly payments, helping manage the eventual roll-up of interest and taking greater control over the costs.
Varied early repayment charge (ERC) structures - including products with no ERCs at all, as offered by more2life - provide homeowners with the ability to adapt if their circumstances change, while our new technology-led solutions such as ProView make valuations and underwriting decisions faster and more accurate, reducing uncertainty for both advisers and borrowers.
Lifetime mortgages can therefore be tailored to individual needs, rather than one-size-fits-all solutions. It’s exactly what borrowers, brokers and the regulators have been crying out for.
The alternative to downsizing
There will always be some who prefer the downsizing option. It can offer similar benefits in terms of releasing wealth and reducing IHT liability. But while selling up can deliver similar tax benefits, it comes with plenty of drawbacks.
Moving home later in life can be stressful, disruptive and emotionally challenging. Many homeowners are reluctant to leave the property they have lived in for decades, or to compromise on location in order to free up cash. Plus, of course, the rumours around the introduction of a new property tax for those selling homes valued over £500,000, is likely to make downsizing even less attractive for older homeowners.
Lifetime mortgages provide a way to avoid that while still achieving the financial outcomes they need. Now is the time to get the message out.
Grasping the opportunity
For advisers who have yet to engage with later life lending, now is the time. Client need is rising, regulation is evolving, and the risk of inaction is that clients miss opportunities to protect their wealth. Whether you choose to advise directly or partner with a specialist, the key is to have a plan in place.
By raising the subject proactively, advisers can demonstrate real value, positioning themselves as trusted guides through one of the most complex – and emotional – areas of financial planning.
Inheritance tax is only going to capture more estates in the coming years. But with the right advice, and intelligent use of solutions like lifetime mortgages, clients can take control of their financial futures, support their loved ones today, and leave behind the legacy they intend.
