Financial Planners at wealth manager Rathbones have reported a surge in client queries about estate planning amid concerns of possible changes to the IHT regime in the forthcoming Budget.
The firm said many clients are now considering ‘lesser known’ strategies to reduce IHT.
With the freeze on both the main IHT nil-rate band (unchanged since 2009) and the residence nil-rate band, more estates have become liable for IHT, or face higher tax bills, even before the latest policy changes are taken into account.
A recent FOI request by the firm revealed that nearly one in ten estates liable for IHT paid over £500,000 in the most recent year for which data is available.
If the trend seen over the three years to April 2022 continues, the company estimated that 3,524 estates will face IHT bills of more than £500,000 by the end of the 2025-26 tax year, based on an average annual increase of 8.74%.
Simon Bashorun, head of advice at Rathbones Private Office, said: “The freeze in IHT nil-rate bands has put families on a treadmill of rising inheritance tax liability, even before any further changes are made. While speculation around the Budget is understandable, making snap decisions can derail plans and prove costly.
“Regardless of what the future may bring, effective IHT planning starts with knowing what you can afford to give away. That requires a robust lifetime cashflow plan to assess your capacity to part with capital or income. From there, using current allowances and reliefs makes sense. Tailored financial advice is crucial to ensure the best strategy for individual circumstances.”
He said the firm has been seeing rising interest in how a deed of variation can be used to redirect an expected inheritance to ensure assets are passed on in a way that aligns with the family’s long term financial goals - for example, by skipping a generation or placing the inheritance into a trust.
He said other lesser known strategies being consider by clients include investing in AIM shares, Business Property Relief (BPR) investments, and gifts out of surplus income.