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Extra, extra, read all about IHT

Newspaper campaigns are helping to raise awareness of inheritance tax.

As I gathered up the usual newspapers in M&S during my Saturday morning shop, the following caught my eye on the front page of the Daily Express:

“Thousands say scrap death tax.” “Downing Street computers overwhelmed yesterday by support for our crusade against inheritance tax.”

“The demand for abolition immediately shot to the top of the most popular petitions in the economics and finance category on the Number 10 site.”

And just for good measure, a quote from a member of Joe Public: “It is something that has been annoying me for years. Everything I have, I have paid tax on, and we were always encouraged to save, just for the Government to come in at the end and take it.”

Now, I am not a Daily Express buyer. What is usual for me on a Saturday? FT, Telegraph, Times – and the Sun. Well, Thierry is guest columnist in the sport section. So, OK, I am probably a bit more prone than most to an IHT-led headline but I am clearly not alone.

IHT is definitely moving from a tax that has to have interest created in it to one that already has a high degree of interest in it.

I have referred before in this column to Gary Hamel’s book, Competing for the Future, and his explanation of the need for any growing business to be able to not only satisfy the expressed needs of existing clients but also make clients aware of needs they did not know they have – their unexpressed needs. Self-evidently, proactivity is required to uncover unexpressed needs and to secure new clients.

Proactivity connected with IHT is an activity that is likely to yield a positive return if directed at the right client segments, particularly those with clients worth more than the nil-rate band.

Campaigns such as those being promoted by the Daily Express and other press coverage given to the subject is definitely raising the profile of IHT in the country’s psyche and that must be a good thing for advisers wishing to do business in this market.

Any adviser who is going to be seriously involved in this business will want to have as much information as possible about the potential size of the market, how the tax works and what can (and cannot) be done about it.

Halifax has an excellent track record of providing very clear indicators of just how many people are currently affected by IHT and how many may be affected in future. It draws substantially on HM Revenue and Customs’ statistics but presents them very well and pretty powerfully. It gives a very clear indication that, based on the legislation as it stands and barring any complete abolition of the tax, the range of people who will be affected by IHT will increase pretty rapidly in years to come.

Here are some extracts from an HBOS press release of August 5 last year, drawing on the most recently published HMRC data:

“The number of estates paying inheritance tax rose by 72 per cent over the five years to 2003/04 to 30,451. The Government’s own estimates suggest a further 22 per cent increase in the number of estates paying the tax by the end of 2006/07 to £37,000.”

There is also the fact that a greater proportion of the baby boomer generation own property than the generations before them, which expands the IHT tax base. And it is not just the upper end of the market that will be hit by IHT.

“The number of estates with a value of less than £500,000 paying IHT rose by 75 per cent over the five years to 2003/04 to 21,750. These estates now account for 71 per cent of all estates paying IHT.

“In 2003/04, 8 per cent of all estates worth less than £500,000 paid IHT, up from only 5 per cent in 1998/99. The average amount of IHT paid by these estates was £31,393. Estates valued less than £500,000 accounted for 25 per cent of total IHT revenue in 2003/04, £683m.”

IHT is undoubtedly becoming more important to the Government.

“In 2005/06, the Government collected £3.3bn in IHT revenue and projects £3.6bn in revenue in this financial year (2006/07). Over the past five years, there has been a 49 per cent increase in IHT revenue.”

At the time of the press release, group economist Tim Crawford said: “Inheritance tax revenue, along with the number of estates paying the tax, has risen sharply. This is largely due to the threshold for inheritance tax failing to keep pace with the rise in property prices over the past decade. We call on the Government to raise the inheritance tax threshold to £430,000 to account for the increase in property prices over the past 10 years.”

A key driver of IHT revenues is residential property. No surprise, then, that against this economic background, HMRC Inheritance Tax (its new name) has sought to put in place as many barriers as possible to acceptable planning with this asset class.

More on breaking into the estate planning market next week.

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