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Tony Wickenden: Turning IHT anger into planning opportunities

Tony WickendenAnger and fear will often spur a desire to take action, and advisers must be on hand to help

The amount of revenue that the government raises from inheritance tax continues to rise year on year, with the latest figures from HM Revenue & Customs  putting the yield at £5.2bn.

A substantial number, you may think. But did you know that for every £100 in tax raised nationally, IHT contributes just 77p?

For a tax that generates so little for the Treasury compared to others, it has a great ability to provoke taxpayer anger.

So, leaving aside the numbers (which the taxpayer probably finds no more than mildly interesting) what is the cause of this anger?

Most commonly, people have a problem with HMRC taking a slug of money from wealth that, in their eyes, has already borne tax.

Tony Wickenden: Do clients’ IHT set-ups pass new HMRC test?

Capital subject to IHT may have had its roots in income or capital gains that will, in all probability, have borne tax. Because IHT is firmly framed as a tax on the donor, the double taxation can feel very real.

For others, the source of capital may have been an inheritance, but even that could have borne tax on its transfer.

Another reason for IHT anger is the headline rate of 40 per cent. The subtleties of the nil rate band, spouse and other exemptions may not be fully appreciated at the point the anger wells up.

There is also the anger driven by a perception that the uber-rich can avoid IHT and the merely reasonably rich will find it more difficult.

But the existence of anger in relation to a willingness to take action is a good thing.

For some areas of financial planning, the absence of anxiety is one of the biggest impediments to action. Anger in relation to IHT could be seen to flow from the fear of losing more than is fair to HMRC, and clients experiencing such emotions will be more predisposed to act.

Danby Bloch: Batten down the hatches for IHT review

This point should encourage more advisers to be enthusiastic in talking about estate planning with clients. In some cases, where a client is perhaps unaware of the facts stated above, the adviser may need to emphasise what it will mean for them. Generating anger in this respect is a necessary and completely justifiable means to an end.

And in a world where HMRC is doing all it possibly can to stamp out aggressive tax avoidance that defeats the intention of parliament, there are a number of straightforward and acceptable planning strategies that can be deployed.

As well as simple gifting, there are a number of trust-based strategies to deliver appropriate levels of donor control and, if required, donor access – none of which would require disclosure of tax avoidance schemes notification nor run into any problems with the gift with reservation or pre-owned assets tax provisions.

And let’s also not forget that perhaps the most tried and tested, and least contentious, of all estate planning strategies is ordinary last survivor life assurance held in trust to meet the prospective liability.

The UK’s protection gap is testament to the fact we are insufficiently anxious about our lack of cover to do enough about it. Maybe, in obtaining protection to solve an IHT problem, the anger over the tax that exists could have a positive impact for advisers and their clients.

Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn



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