Preserving Family Wealth

By June 15, 2023Tax Planning
estate planning written on a mini whiteboard with leaves next to it - Inheritance Tax receipts rise again

As we get older, our financial priorities often begin to shift, and many start to consider preserving the wealth they have accumulated during their lifetime for the next generations.  It is only natural that we would want to leave family wealth to those who mean the most, and in the most tax efficient way possible. It is easy to forget that accumulations of wealth through salary or earnings have already been taxed on receipt, and with assets above the Inheritance Tax nil rate band subject to a tax charge of 40%, this can lead to a significant reduction in the value of the net estate.


Inheritance Tax receipts rise again

The main band for Inheritance Tax remains at £325,000, which is the level it has been set at since 2009, and this band will remain at this level until 2028 at the earliest. As asset values grow, more estates are becoming liable to Inheritance Tax, and it was of little surprise to see the HMRC data for April, which showed that Inheritance Tax receipts reached £597m for the month of April alone, an increase of £90m on the same month last year. Inheritance Tax receipts now account for a growing proportion of the overall Tax take, with the Office of Budget Responsibility predicting the Treasury will collect £45bn in Inheritance Tax over the next 6 years.

There are, however, steps you can take to mitigate the liability to Inheritance Tax on your potential estate and with careful planning, greater sums of family wealth can be passed on to the next generation. As holistic financial planners, we take the broadest view of a client’s financial circumstances, and conversations with clients about potential Inheritance Tax concerns and estate planning are a feature of the regular ongoing reviews we conduct. By starting conversations early, appropriate mitigation can be put in place in time so that hard-earned wealth can be preserved for family members.


The importance of seeking advice

We often see clients for the first time, who haven’t given any consideration to Inheritance Tax planning. With rising house prices, increasing wealth through investment and surplus income receipts and inheritance they may themselves receive in the future, clients are often surprised at the amount of Inheritance Tax that could be payable on their death. Naturally, clients will often have more significant financial priorities to attend to in mid-life, such as saving to provide a retirement income, paying off existing debts, or covering the costs of University for their children. As clients get older, however, conversations about wealth preservation generally become more focused, and we work with clients to set in place a financial plan to tackle the potential tax liability.

It is very important to seek professional advice and guidance on an ongoing basis to make the most of any Inheritance Tax mitigation and avoid any potential issues that mitigation could cause. For example, making gifts of assets to children and grandchildren is a perfectly rational strategy to consider; we, however, have seen cases where clients have decided to make large gifts to family at an early stage in retirement, without considering the longer-term implications. They then find themselves in need of capital that now isn’t available to them, as the capital has been gifted and spent. Likewise, we have come across individuals who have put in place complicated -and often costly – arrangements that may not be effective for Inheritance Tax mitigation.

Finally, it is important not to leave Inheritance Tax planning too late in life, as this can limit the range of options available. This is where regular financial planning reviews can assess the need to consider Inheritance Tax planning as circumstances and objectives change over time.


Keeping actions taken under review

Another complication of this type of planning is the potential for changes in legislation to impact on Inheritance Tax planning that has already taken place. Of course, any advice can only work within the existing set of tax legislation, and we, like everyone else, are peering into the darkness in trying to determine what the rules will look like in years to come. Given the increasing relevance Inheritance Tax receipts now have as part of the overall Treasury revenue, it is fair to say that any reduction in the amount of Inheritance Tax received would need to be found through alternative taxation. For this reason, we look to plan ahead with clients, and as part of a wider financial planning strategy, can include solutions that aim to provide Inheritance Tax mitigation, but can also be altered if tax rules change in the future.


The value of planning ahead

The latest figures from HMRC are a stark reminder of the amount of tax received from families, where planning and taking appropriate steps could potentially have reduced the tax burden faced by the next generation. We provide advice to many families, where two, three or four generations of the same family are clients or have been clients during their lifetime. As those clients have benefitted from ongoing holistic advice, we have undoubtedly saved clients many millions of pounds in Inheritance Tax that would otherwise have been payable. That is the value obtained by seeking advice and planning ahead.


Our experienced holistic financial planners can help you consider estate planning as part of a wider financial review.  Contact us here to start a conversation.