Only one in three over 55s approaching retirement who take advice from an IFA have considered inheritance planning, according to research.
The findings suggest not enough IFAs are talking to their clients about inheritance tax (IHT) – even though HM Revenue & Customs takes a 40% slice of estates over £900,000 for married couples.
Last year, HMRC raised a record £4.9 billion from IHTeven though new rules raised the limits on how much an estate can pass on.
Henny Dovland, an IHT expert with Time Investments said: “Financial planning needs to be done on an intergenerational rather than individual basis. Instead of considering bequeathing assets to children alone, it is worth considering how grandchildren and great grandchildren can benefit. It is an area where expert advice from a financial adviser is needed.”
Five factors that impact IHT
He suggests thinking about five factors that impact IHT, starting with how much income is needed in retirement and how long this needs to last.
“This is a difficult question, but with an idea of inflation expectations, lifestyle and health, some indication can be achieved,” he said “Next, is to establish whether that income target can be reached based on an assessment of their available assets.
“Where there are surplus assets, IHT planning should be considered. There are several tax efficient ways to pass assets to descendants, but these have different constraints and obligations.
“The easiest route may be to pass cash to family members. However, aside from the use of small and annual gift allowances, larger gifts will typically take seven years to fully fall outside of the taxable estate. It also means those doing the giving lose total control of the money.
Other options
“A more complex option, but with greater restraints on the recipients, is to set up a trust which is exempt from IHT. However, as with gifting, once the assets are in the trust the individual loses control.
“An alternative tax efficient option is investing in shares that qualify for Business Relief (BR) and holding them for more than two years.”
Dovland added that the aim of IHT planning is to make the right amount of money available at the right time to reduce the amount of potential tax to pay.
