Inheritance Tax worries surge but survey shows only 26% of people are prepared with strategies

by | May 10, 2024

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  • Survey Uncovers Concern: 45% of UK’s Wealthiest Worry About Financial Stability for Next Generation 
  • Online demand for Inheritance Tax Reduction Strategies Surges 13%, Yet Only 26% of UK’s Wealthiest Are Prepared 
  • Concerns Over Inheritance Tax Spark Future Planning: Over Half of UK’s Wealthy Include Children in Discussion

A new study by private and commercial bank, Arbuthnot Latham has uncovered that despite high levels of concern over the financial security of future generations, only 26% of the UK’s wealthiest have tax mitigation strategies in place.  

To support high net worth individuals with maintaining their families’ financial wellbeing, Arbuthnot Latham’s experts have highlighted key steps to communicate with the next generation about inheritance and protect their financial stability.  

There are a number of ways you can mitigate your tax liabilities when planning for the future. 

 
 

With almost half the UK’s wealthiest concerned that the next generation faces financial decline, Rachel Wyatt, Wealth Planner at Arbuthnot Latham, uncovers some strategies which can support with ensuring you leave the legacy you want.  

Lifetime gifting 

Some gifts can be made each tax year, and immediately fall outside your estate for IHT purposes, provided they qualify and are made outright. 

 
 

These include an annual gifting allowance of £3,000, gifts of up to £5,000 from a parent to a child upon marriage or civil partnership, and regular gifts from excess income. You can also give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person. 

Gifts in excess of these allowances will only be tax-free if you live for seven years after making the gift. 

Trusts 

 
 

Trusts can be a powerful tool for giving gifts to your chosen beneficiaries. By appointing yourself as a trustee and writing a letter of wishes, you can maintain control or influence over the distribution of income and capital. 

Certain trusts offer an excellent way to reduce the amount of taxes loved ones pay when receiving an inheritance as well as providing safeguards on how your beneficiaries can access your gift. A wealth planner can guide you through the intricacies of trusts and help you navigate this practical wealth management approach. 

Pensions 

 
 

Pensions are an important wealth planning tool as they are outside of your estate for inheritance tax purposes. They are also one of the most efficient investment vehicles. 

There are, however, many elements to consider from risk appetite to when and how you might want to access your these funds. There is no ‘one-size-fits-all’ approach, and professional financial advice is key to ensure your estate planning strategy is designed to meet your future financial and lifestyle goals. 

Protection 

 
 

Ensuring the financial wellbeing of your family members during emotionally challenging times is paramount to many individuals. Estates can be illiquid and protection can provide a cash injection to cover some, or all, of the IHT bill, or any other associated costs with death. 

It is important to review your cash flow forecast to assess how much money you might need to maintain your lifestyle, consider future long-term care needs, and how you might use any surplus efficiently. 

Business relief 

 
 

Business relief presents an opportunity to incorporate tax-efficient planning into your overall strategy. This relief applies to assets that meet specific conditions and can be valuable to your wealth management plan. Bringing in specialist wealth planning expertise can assist you in leveraging this relief effectively. 

Putting in place strategies to reduce inheritance tax now will ensure the wealth of future generations. However, to enable them to maintain this wealth long-term it’s important that families discuss the transfer of wealth and ensure the next generation has expert guidance sooner rather than later. Rachel Wyatt, Wealth Planner, Arbuthnot Latham, said: Many people feel uncomfortable talking in any detail about inheritance and too often it’s not discussed.  The danger with this approach is no-one achieves their desired outcomes.  

“An estate plan gives you the tools to have a proper conversation, removing uncertainty and empowering your beneficiaries to plan efficiently themselves.” 

 
 

Expert Guidance: Key Conversation Topics for Parents to Discuss Inheritance with Children and Grandchildren 

  • Values and Responsibilities: Discuss family values, responsible wealth management, and the importance of giving back to the community. 
  • Financial Education: Provide financial education, including budgeting, saving, investing, and long-term financial planning. 
  • Estate Planning: Explain the basics of your estate planning strategy, including wills, trusts, and your wishes for asset distribution. 
  • Inheritance Expectations: Be transparent about what children and grandchildren can expect in terms of inheritance, managing their expectations while encouraging open communication. 

Data Sources & methodology: Arbuthnot Latham partnered with Atomik Research, an independent market research agency, to survey more than 500 UK residents with investible assets of at least £100,000, which took place between 30 November and 5 December 2023. 60% of respondents have investible assets (excluding property assets) of between £100,000 and £499,000, and 40% have at least £500,000. Investible assets exclude property wealth. Expert guidance has been provided based on responses to this survey highlighting the key financial concerns of the UK’s High Net Worth.  

More About Arbuthnot Latham: Arbuthnot Latham & Co., Limited, established in 1833, is a London‐based private and commercial bank, also specialising in wealth management and specialist commercial lending including asset-based lending, asset finance, and leases. With regional offices in Manchester, Bristol and Exeter, Arbuthnot Latham & Co., Limited is owned by Arbuthnot Banking Group PLC. 

 
 

Arbuthnot Latham aims to provide a comprehensive approach to private banking, commercial banking, and wealth management with its four core services; Private Banking; Commercial Banking; Wealth Planning and Investment Management. 

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