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Bad heir daze

Mark Green, head of tax and estate planning at Legal & General Savings, says advisers need to take action to overcome clients’ inertia on inheritance tax planning

People resent their money being taxed repeatedly but seem incapable of avoiding the penalty of leaving their estate to the taxman.

Inheritance tax is high on the list of the most unwelcome taxes, so why do so many people continue to be pulled into its net?

Our research reveals that 69 per cent of people are aware of the potential impact of IHT but the majority have taken no action beyond making a will.

Less than one in 10 say the reason for delaying taking action is concern they might lose control of access to their money or their home as they grow older.

The top three reasons given for putting off reducing the potential IHT liability on their estate are shown in the chart on the right here.

The Tax Action Report published by in August reveals taxpayers will waste nearly £1.3bn this year due to poor IHT planning.

The IHT nil-rate band is frozen at £325,000 until April 2015 and will then rise with the consumer price index from 2015 as the default index. It is expected that the amount of tax paid unnecessarily will go up because of this.

I often hear advisers say their clients do not want to engage in discussions about estate planning. For these IFAs, overcoming inertia and finding effective ways of communicating with clients who have potential estate planning needs is a major challenge but this may not be as difficult as it first appears.

Our latest research shows it is possible to break through the barrier of complacency if we make people more aware of the legitimate routes available to plan effectively for IHT.

After being presented with the facts on IHT, half of the people surveyed said they were keen to learn more about their options on IHT mitigation.

Fifty-six per cent share the same two objectives when asked about how they would like to manage their finances later in life. They want to achieve an equal balance between enjoying their retirment and leaving their family or chosen benefiiaries or charities whatever was left of their wealth.

These objectives can be achieved with options as simple as life cover and use of loan trusts or discount gift trusts, using onshore or offshore bonds.

Perhaps the good news is that when people are looking for help, they recognise they should seek professional advice or guidance.

In our survey, IFAs and solicitors are at the top of their list of likely sources, with 30 per cent and 26 per cent saying they would visit these sources respectively.

Previous research among IFAs in 2008 indicated advisers and paraplanners get more involved in IHT advice as client age increases, so it makes sense to start with older clients.

Access to a good tax and trust team is important for IHT specialist IFAs and those who write trust business on a less frequent basis.

In addition, the growing involvement of paraplanners in setting up new trusts means that online support is increasingly of benefit.

With tax experts on hand to help, there is no longer any reason for advisers to avoid tax and estate planning for their clients. Unless we break the mould of inactivity on estate planning and make IHT our number one tax mitigation target, the proportion of people’s wealth that disappears unnecessarily into HM Revenue & Customs’ coffers will continue to rise.

Make sure your clients get to see the potential impact that IHT could have on their dependants’ inheritance. If our research is right, half of them will want to take action today.



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