Experience has taught me that the root cause of financial disagreements within families is often simply silence
Inheritance Tax planning. Three words that will mean less in the future
With an ageing population, pressure on public services and a feel-good Budget to soften Brexit, it is unsurprising that the Chancellor is looking to identify wealth he can visit to raise tax revenues. A prime candidate is the generational wealth of ‘baby boomers’, loosely defined as people born between 1945 and 1964. Whilst it has not always been a smooth ride, the ‘golden generation’ has lived through a period of long-term economic growth, enjoyed defined-benefit pensions and benefitted from the boom in property prices.
This generational wealth is attractive to the Chancellor for many reasons. Firstly, increasing tax revenue in this area is less high profile than Income Tax, VAT or Corporation Tax rises. Secondly, the Chancellor can justifiably claim that he is primarily motivated by simplifying an area of the tax system that is over-complicated and has been largely untouched for many years. Thirdly, there is lots to go at! The number of estates paying Inheritance Tax (IHT) doubled between 2009 and 2016.
With many of my clients being paid-up members of the golden generation, I advise almost all, where appropriate, to do some IHT planning. Whilst in most areas of financial planning clients tend to follow my advice, when it comes to IHT, many opt to do nothing. Whilst each client’s motivations are unique, there are some common themes that come up in our conversations and which are echoed in commentaries in the financial press.
IHT planning requires us to accept our own mortality. This is an uncomfortable truth for many of us. With age expectancy well into the eighties for both men and women, it is understandable that many justify inaction on the grounds that they don’t know when they will die and what their financial needs will be in terms of care and support at end of life. Perceived loss of financial control, opening a family ‘can of worms’ and cost are other comments I come across. All the above can be accommodated and dealt with in the IHT planning process. However, the decision as to whether to proceed or not remains, as always, with the client.
If you have been putting off IHT planning, now is the time to climb down from the fence and act. In future, the scope for IHT planning will be greatly reduced. For example, the generous rules on gifting are likely to be tightened and IHT thresholds may be reduced. Compared to our European neighbours, British ‘death’ or ‘wealth’ taxes are relatively lenient. They may be one of very few areas in which Brexit leads to greater harmonisation!