Mitigating rising inheritance tax – the need for an effective estate planning solution

Anne Slater-Brooks, Senior Business Development Manager at Triple Point

While the recent Spring Statement brought in a variety of tax changes, its failure to offer any change for inheritance tax thresholds could see many facing rising IHT bills in the months ahead. As inflation is predicted to rise above 8% this Spring and the nil-rate band is still set to remain frozen until 2026, more people could be facing rising IHT and, therefore, seeking effective solutions.[1]  Indeed, according to a leading financial title, ‘If the current freeze follows the patterns set previously, it could trigger growth in receipts of 60 per cent, taking total IHT revenue to £8.5bn by the end of 2026.[2]

As advisors are supporting an increasing number of clients seeking to tackle this climbing IHT, an estate planning solution that targets capital growth, but also reliable returns will be essential. In light of this, prioritising diversification, such as through investing in a range of companies that provide funding through lending and leasing, could become an increasingly important strategy for advisors to consider.

IHT on the rise

With inflation reaching a 30-year high of 6.2% this month and showing no signs of slowing, more people will be finding themselves liable for IHT as the threshold remains unchanged.[3] Equally, the pandemic has triggered an exponential rise in property prices with the average price of a house increasing by 10.8% in the year to February 2022.[4] As house prices have risen and the residence nil rate band has not, it has become increasingly difficult for households to remain under the threshold. In fact, IHT receipts from April 2021 to February 2022 have already reached a record high of £5.5 billion, a 14% increase on the previous year.[5]

However, these IHT bills are expected to rise even further with an anticipated £6.1 billion in the coming tax year[6] due to rise to £8.5 billion by the end of 2026.[7] As a result, more and more clients will be seeking effective estate planning solutions to mitigate this seemingly long-term rise in IHT.

Time to diversify

However, as an increasing number of clients begin to consider solutions to rising IHT bills, they will also be seeking a strategy which targets predictable returns. As a result, it could be crucial for advisors to advocate for the advantages of diversification in terms of ensuring the long-term health of clients’ savings. One option is direct lending, which is an investment strategy that can offer diversification as well as returns which are uncorrelated to equity markets.

The benefits of diversification in terms of spreading risk and improving returns is widely acknowledged. Diversifying investment can help limit exposure to any single asset, therefore spreading risk, and improving the yield and consistency of income as different assets deliver varying performances at different times.

Direct lending has historically been the preserve of banks and large financial institutions. However, it has evolved to become increasingly accessible for a wider group of investors providing access to an asset that is not correlated with equity markets. For example, Triple Point’s Estate Planning Services targets predictable returns and growth by investing in a diverse portfolio of lease and loan contracts across a range of UK business. This offers investors estate planning solutions with returns that are unaffected by wider volatility as the share price is based on the net asset value of the book rather than rising and falling in line with supply and demand.

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