The biggest single contributor to needless tax payments comes from poor inheritance tax planning. According to IFAP estimates, £1.017bn will find its way to the taxman this year because families have left themselves exposed to needless liabilities.
For IFAs, these unnecessary IHT payments must represent a waste of a potentially lucrative business opportunity. But while the failure of IFAs to ensure they incorporate IHT planning as a central tenet of their advisory service should be viewed as something of a sin, it is not an isolated sin.
In fact, so great is this oversight that IFAs arguably run the risk of transgressing all seven deadly sins if they fail to adopt a more rounded approach to planning client affairs. Below is a quick reminder of how each of these sins potentially manifests itself as a loss of benefits to clients as well as a missed opportunity to IFAs.
Consider, first, the sin that is sloth. The best piece of advice an IFA can impart to a client is that, to avoid being clobbered for IHT, there is a need to plan as far ahead as possible. There is no point in waiting for a deadline like the end of the tax year to put plans into operation. Circumstances change and IHT planning must be regarded as a year-round activity.
If there is a challenge in getting the whole IHT review off the ground, then part of the problem will doubtless be linked to a sense of pride the client may feel about the subject.
Many people wrongly assume that inheritance tax only affects the super-rich. This is an image which IFAs must dispel as early as possible when reviewing client affairs. The IHT threshold for 2002/03 is £250,000 and tax is charged at a flat rate of 40 per cent on amounts above that threshold.
IFAs who have clients in the South-east will be aware that the value of residential property alone is often enough to take an estate out of the nil rate.
Perhaps less well understood is that assets which have been built up within tax-free wrappers such as Peps and Isas lose their tax-free status on the death of that investor, with the values added back into the estate for IHT purposes.
The earlier that plans are set in play to mitigate against IHT liabilities, the better. This should also mean that IFAs neatly sidestep any issues to do with IHT involving anger.
Because it involves inevitable references to death, the subject of IHT planning is often a sensitive one which clients prefer not to dwell on. Nonetheless, clients who are hit by IHT demands as a result of the death of a loved one may feel aggrieved that such issues were not accommodated prior to their demise.
The astute use of trusts, often in conjunction with onshore or offshore bonds, is a good way of preventing survivors from being hit by unnecessary demands for inheritance tax on a portfolio of investments bequeathed to them by a loved one.
Few of us want to be accused of gluttony and, happily, as IFAs can report to their clients, when it comes to estate planning, the taxman is not all mean. Concessions exist allowing individuals to make gifts of up to £3,000 a year in a bid to cut exposure to IHT.
Of course, money which has been given away up to seven years before death may be added back into the calculation for IHT purposes. But it may be worth taking out life insurance that would cover a future IHT bill. Having the insurance written in trust would prevent the payout being absorbed back into the estate for the IHT calculation.
It is important to be aware that not all IHT arrangements involve gifting assets without being able to access the capital. A number of offshore products enable individuals to gift capital but access part of the sum at predetermined intervals in the future – ideal for those of retirement age who wish to make the most of their accumulated capital while minimising their IHT liability.
Avarice can be defined as an eager desire for wealth. If IFAs are doing their job properly, they should be responsible for plenty of avaricious clients who are keen to pass on their assets to beneficiaries with only the most passing of interests from the taxman.
Each client's circumstances differ and it is particularly important for IFAs to point out that IHT planning can be tailored to match individual needs as accurately as possible.
The two remaining sins are those of lust and envy. By now, IFAs should be champing at the bit to throw themselves wholeheartedly into the IHT planning arena. Clearly, clients whose advisers are not so clued up in areas such as estate planning may feel more than a little envious of their friends who benefit from sound financial advice in this sphere.