Estate planning is the big opportunity of 2023

by | Nov 25, 2022

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For professional advisers and paraplanners only. Not to be relied upon by retail investors.

Estate planning is something too many families put off. But recent events have made inheritance tax and providing for loved ones a priority.

As the cost of living has risen sharply, wealthy parents are looking to give away some of their assets earlier. Not only to support their children financially, but to begin planning for inheritance tax.

 

More than three quarters of 40-year-olds have already been given some form of inheritance by their parents. While more than a third of parents of 40-year-olds expect to gift money before the end of the year.[1]

Like any financial planning, gifting shouldn’t be considered in isolation. Why not use this opportunity to visit estate planning with your clients?

While clients may be looking to support their loved ones through making lifetime gifts, it’s a good idea to also have conversations about planning for assets that will pass down after a client dies

 

And it’s worth remembering that Business Relief could have a role in those conversations.

The families being impacted by inheritance tax

Rising inflation has combined with frozen inheritance tax allowances, impacting families across the UK.

A record £3.5 billion of inheritance tax was paid between April and September 2022.[2]

 

The nil-rate band has been frozen for more than a decade. This allowance, and the residence nil-rate band, are fixed until at least 2028. 

PwC calculate that if the £325,000 nil-rate band had instead rose in line with inflation every year since 2009, it would stand at £478,078.[3] This would have allowed a further £153,078 to be left to loved ones tax free.

Meanwhile, inflation reached a 40-year high this year.[4] The value of estates has skyrocketed, with one in 42 homes now worth more than £1 million[5]

 

The benefits of Business Relief

Business Relief is a longstanding relief from inheritance tax relief that’s been supported by successive governments because it contributes to the UK’s growth ambitions. Smaller businesses help boost productivity and innovation in the UK, not only through the jobs and activity they create

themselves, but through the industry that can build up around them. BR ensures many of these businesses have access to capital.

Investing in smaller businesses is high risk, so inheritance tax relief is available to help compensate for some of that risk.

 

BR can be a compelling option for clients, as it offers three significant advantages: speed, growth, and access.

Once a BR-qualifying investment is held for two years and at the time of death, it becomes zero-rated for IHT. This is a significantly shorter window than gifting.

And because BR involves making an investment, clients can target growth as part of their estate planning. It also means they can request access to their capital at any time, subject to liquidity being available.

 

Bear in mind the risks

The value of a BR-qualifying investment, and any income from it, can fall as well as rise.

Tax treatment depends on individual circumstances and tax rules could change the in the future. Tax relief depends on portfolio companies maintaining their qualifying status. The shares of smaller and unquoted companies could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. They may also be harder to sell.

Use this inheritance tax toolkit

To move your client’s estate planning forward, use the Octopus inheritance tax toolkit. You’ll find resources to help you educate clients and much more.

For more information, please click here


This blog does not constitute advice on investments, legal matters, taxation or anything else.

Issued by Octopus Investments Limited, which is authorised and regulated by the Financial

Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and

Wales No. 03942880. Issued: November 2022. CAM012512-2211


[1] “Four safe ways to cut inheritance tax”, The Sunday Times, 6 November 2022

[2] As above

[3] https://www.express.co.uk/finance/personalfinance/1593045/inheritance-tax-IHT-threshold-325-000-Chancellor-Rishi-Sunak-stealth-tax-HMRC

[4] https://www.ftadviser.com/investments/2022/03/23/scale-of-the-uk-inflation-shock-revealed/

[5] https://www.thetimes.co.uk/article/huge-rise-in-1-million-homes-across-the-uk-mcrrs7ttl

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