The property boom of recent years may be coming to an end, but many people have become asset millionaires in the UK. Two things in life are certain of course and once you are gone, the government is keen to grab as much tax from your estate as they can. It isn’t just houses, your estate includes digital assets like digital currency, NFTs, copyrighted imagery or content, or stakes in business, physical and online too. There are opportunities for brokers in offering estate planning services, and the digital economy means long term planning could well pay off. Here’s the word;
Individuals with at least £1 million in total assets are failing to take advice on inheritance tax (IHT) planning and many not even drawing up wills, new research from Investec Wealth & Investment shows. Its study found nearly half (44%) of people with wealth and assets after any debts of £1 million or more have not taken advice on IHT planning and more than two out of five (42%) have not taken any steps to reduce potential inheritance tax bills.
More than one in five (21%) do not have wills drawn up on how to divide their estate, the study found, despite Government statistics** showing the total paid in IHT increased by £1 billion last year to around £7.1 billion.
HMRC figures highlight that the increase in IHT receipts is partly due to the Government decision to freeze thresholds at their 2020/21 level until at least 2025/26. That is estimated to affect around 161,900 estates over the period.
Couples can now leave property worth up to £1 million before paying any tax, but the tax-free amount depends on who you leave the property to and the overall value of your estate. For those with larger estates, the main residence nil-rate band, and therefore the amount they can pass on tax-free, reduces gradually, known as ‘tapering’. For every £2 that their estate is over £2m, the property allowance is reduced by £1.
The Investec Wealth & Investment research shows individuals with just over £1 million are least likely to have taken advice or any steps to reduce potential IHT liabilities. Around 50% of those with between £1 million and £1.25 million have not taken any action and 61% have not taken advice. Wealthier individuals are more likely to take advice – all those with £3 million questioned have taken advice, the study found.
The research found around one in 12 adults (8%) estimate they are worth £1 million or more after taken debts into account. Across the population as a whole the research found just two out of five (41%) had wills in place.
DIFFICULT CONVERSATIONS
Amanda Cook, Financial Planning Director at Investec Wealth & Investment, said: “Discussing wills and inheritance tax planning can understandably be uncomfortable for individuals and families as it means addressing the elephant in the room, that we all die, but it is worrying to see so many relatively wealthy individuals choosing not to plan.
“Careful estate planning is however in everyone’s best interests. It allows for a much smoother and less stressful transition of your family wealth to children, grandchildren, and other dependents. IHT thresholds have been frozen since 2020/21 and by Government estimates will affect more than 160,000 individuals and families so it makes sense for people to take advice and start planning to ensure they leave as much as possible and avoid problems for families.”
She added: “Freezing tax like this is effectively tax by stealth because it increases the amount that HMRC receives each year without people realising it.”
Data shows that if the IHT band threshold had followed inflation trends each year since 2009, it would have reached over £478,000. This is more than £153,000, which could have been passed onto families tax free. All of this means that a grieving family paying IHT at 40%, could pay an additional £61,231 to HMRC because of the freeze.
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