Inheritance Tax is becoming harder for advisers to ignore, warns Ahmed Bawa, CEO of Rosemount Financial Solutions (IFA), as rising receipts and frozen thresholds pull more families into scope. With clients often reluctant to discuss IHT and legislative changes adding further uncertainty, early and ongoing planning is now essential to ensure wealth passes to loved ones rather than the Treasury.
Inheritance Tax (IHT) is one of those subjects that few clients enjoy discussing, not least because of its unpopularity as a levy. Yet with HMRC’s latest figures showing receipts of £5.2 billion between April and October – a £200m increase on the same period last year, and another record high – it’s a subject advisers can’t afford to put off.
It’s often pointed out that IHT only applies to a small fraction of estates. That can be a misleading impression since frozen thresholds, rising property values and changes to the treatment of pensions from 2027 mean many more families will be drawn into scope.
Inheritance tax is no longer solely a concern for the very wealthy. For many, paying off the mortgage and building a reasonable pension pot has become enough to create a potential liability.
Why clients avoid the conversation
Advisers will be familiar with the objections clients might have about even discussing IHT. Some believe their estate isn’t large enough to be affected, so it doesn’t impact them. Others simply find the topic uncomfortable, associating it with mortality rather than good financial planning.
That hesitation may be understandable, but delaying the discussion can have significant long-term consequences. One of the most important instruments in effective estate planning is time, whether that’s time to make use of allowances, structure assets efficiently, or to implement suitable gifting strategies. The later the conversation begins, the fewer options will be available.
In that respect, IHT planning is not unlike life cover. Clients may not see an immediate need, but its purpose is the same. It’s all a question of protecting loved ones from financial strain at a difficult time. The sooner advisers normalise the conversation, the better prepared their clients will be.
Making use of the full range of options
Broaching the subject is just the start, though. Advisers also need to be comfortable with the range of options open to them and their clients for limiting that eventual tax bill.
At Rosemount, we encourage advisers to consider the complete range of regulated solutions available to clients who may be affected by inheritance tax. Business Property Relief (BPR), Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) all sit within HMRC’s approved framework. These schemes exist not only to provide tax-efficient investment opportunities, but to support the growth of smaller UK companies.
That said, we have always maintained that the tax tail should not wag the investment dog. Suitability, diversification and a client’s capacity for risk must come first. Recommendations for BPR, EIS or VCT products must only be made where the client can, at worst, afford to lose the capital invested.
Planning in a changing environment
Advisers also need to navigate an increasingly uncertain landscape. We have all seen how the prospect of the Budget, and the constant drip feed of potential measures, has impacted the behaviour of clients.
That uncertainty just reinforces the importance of early and ongoing discussions. Clients who act now can make use of the allowances and reliefs currently available, rather than being forced into rushed decisions later.
Keeping IHT on the agenda
Ultimately, the role of a financial adviser is to help clients prepare rather than react. IHT should be treated as a standing item in every financial review, revisited regularly as legislation and client circumstances change.
The growing reach of the tax means clients will increasingly rely on advisers to help them understand and manage its impact. Conversations about legacy and wealth transfer can be sensitive, but they are essential, as by raising the subject early and keeping it in focus, advisers can ensure their clients’ wealth benefits their families, not the Treasury.
Inheritance tax may be uncomfortable to discuss, but it’s far more uncomfortable to ignore.
