Pension freedom is helping to drive a boom in inheritance tax (IHT) planning advice. Recent research by Prudential has shown this. Anecdotally, when we’ve been out and about speaking to advisers we’re also hearing of an upturn in IHT planning enquiries linked to pension freedoms with clients taking a keen interest in their overall finances with one eye on the grim reaper.
But when you look at the numbers, IHT itself was making a good case for an upsurge in planning with no need of the ‘pension freedom boost’.
IHT receipts reached £4.658 billion for 2015/16 according to data published by the government last month.
Receipts dropped off in 2007/08 to 2009/10, broadly down to the introduction of the transferrable nil-rate band (NRB) and post financial crisis fall in housing values.
Receipts since then have been increasing; part of this is down to the freezing of the NRB at £325,000 from April 2009.
The NRB is expected to remain at this level until 2020/21. At this point we will also see a full residential nil rate band (RNRB) with certain couples having up to £1 million of IHT-free estate. So you’d be expecting IHT receipts to be on the wane again?
What does the 2016 budget report say?
Factoring in the new RNRB the government expects to see IHT receipts of £5.6 billion in 2020/21.
When you look at the receipts in the bigger picture it’s a tiny percentage of the overall tax take and a tiny percentage compared to GDP.
But the bills are not tiny for those impacted.
Financial planners deal with individuals and whilst the big ticket numbers are always interesting, it’s getting it down to an individual level that’s interesting.
For this we need to look back at some older statistics.
Back in 2012/13 there were a little under 18,000 estates with an IHT bill, averaging out at a little over £170,000. There’s good news for financial planners here though – the average IHT bill is falling!
So why is that good news? If receipts are increasing and the average bill is decreasing then the third leg of this particular stool is the amount of taxpaying estates. These have been rising year on year. The government forecast the amount of taxpaying estates for 2015/16 to be 41,000.
With receipts for 2015/16 in excess of £4.6bn the effected estates will be paying six figure tax bills.
That’s an increase in taxpaying estates of a whopping 127%!
And IHT receipts are on the rise - a 21% increase from last year.
More people paying more tax means more people that need more tax planning advice.
The trend is not your clients’ friend… but it should be a planner's friend!