The IHT threshold freeze increases the need for collaborative advice

Posted by Dave Seager, consulting adviser to Legal Futures Associate SIFA Professional

Seager: Joined-up advice

At the end of March, the government announced that its total tax receipts for the nine months to February 2023 were £722bn, £66bn higher than in the same period 12 months earlier.

HM Revenue & Customs revealed that receipts from inheritance tax (IHT) jumped £900m, or 16%, to £6.4bn. In the context of an overall tax revenue rise of 10%, the increase in IHT receipts is significant.

Of course, this information should ring even more alarm bells when considered alongside Chancellor Jeremy Hunt’s Budget decision to freeze the IHT threshold until 2028. Whilst this may not initially appear too concerning – it has been the same since 2009, after all – the increase in the value of regular people’s estates, primarily driven by property prices, makes it increasingly so.

The Office of Budget Responsibility has previously predicted that the extended freeze to the nil-rate band would increase IHT receipts from £6.1bn in 2021/22 to as much as £7.8bn in 2027-28. This would represent a massive 28% augmentation over six years, and the recent trend may yet see the estimate revised upwards.

The extension continues a subtle but highly effective strategy for the government, particularly when faced with the enormous hole in the country’s finances in this turbulent and challenging post-pandemic period.

At the same time, as professional advisers – whether legal or financial – we need to keep in mind the old adage that, to some degree at least, IHT is a voluntary tax. Both financial planners and solicitors have the knowledge and tools to assist clients in reducing or mitigating the amount of IHT an estate will be liable to pay.

This being the case, quality financial planning firms, such as all SIFA Professional members, would far sooner look to help and advise clients about estate planning and passing wealth tax efficiently to the next generation in conjunction with a private client solicitor.

Whether it be by regular small gifts, larger ‘without strings’ gifts, within the estate for seven years or made within an appropriate trust, SIFA Professional firms would always seek to work with a client’s existing solicitor or, as is often the case, refer them to a legal partner they work with regularly and trust.

Similarly, our highly professional financial planning members have considerable expertise in advising on tax-efficient investment vehicles that utilise the government-backed business relief.

It is important also when advising clients concerned about passing on their hard-earned wealth efficiently that our collaborative advice should also take into account any pension fund assets which are treated very favourably for IHT purposes.

There is no doubt that both financial planners and private client solicitors can offer siloed advice on potentially reducing IHT and passing on assets to our clients’ loved ones, or chosen beneficiaries, tax efficiently.

However, surely it is by working collaboratively that our mutual clients will achieve outcomes that are more likely to be in their ‘best interests’.

SIFA Professional’s raison d’etre is to encourage joined-up advice, and with IHT no longer a tax reserved for the wealthier in our society, that need is greater than ever.


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