IFAs say frozen IHT will affect a third of their clients

One in three (31%) clients are likely to be affected by the frozen inheritance tax thresholds, according to a survey of financial advisers from Octopus Investments.

Related topics:  Savings & Investments
Amy Loddington
25th May 2021
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This is almost double the number of their clients (17%) that advisers say will be impacted by the freeze to the pensions Lifetime Allowance announced in this year’s Budget. Both have been frozen until April 2026.

While the majority of financial advisers (64%) say affected clients are aware of the IHT freeze, only 11% say their clients fully understand how the change could impact them, highlighting the need for advice. A third (32%) believe affected clients are still completely unaware of the changes.

When asked what changes their clients will need to make in light of the IHT freeze, financial advisers overwhelmingly (72%) said they’d need to increase lifetime gifting to avoid the 40% tax. This was followed by 37% of advisers who anticipate increased use of investments qualifying for Business Property Relief, which is particularly useful for those wanting to retain access to their money. More than a third (36%) of advisers also expected clients to use lifetime trusts.

Nick Bird, Head of Strategic Growth at Octopus Investments, comments:

“The freeze to inheritance tax thresholds, coupled with rising property prices, means more estates than ever are likely to face an inheritance tax bill. The good news is there is plenty clients can do to make sure this is not the legacy they leave behind.

“Increased lifetime gifting is looks likely to be the biggest change made to financial planning following the IHT freeze announcement. This is an effective and relatively simple way of reducing IHT exposure, provided clients do it within good time. The potential downside is that once the money has been gifted, it’s gone. Now that we’re all living longer, that balance between lifetime gifting and keeping enough to feel secure in our later years has become more difficult, and that’s why lots of advisers are also considering flexible planning solutions, such as BPR, as a more flexible tool to pass money through the generations.

“IHT is a complicated and often misunderstood tax and advisers have a real opportunity to add value to their clients, particularly where they might otherwise fail to recognise the need.”

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