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IFAs urged to mitigate rising IHT bills

Tax thumbnailThe government is boosting its income from inheritance tax bills because advisers may have failed to communicate the full advantages of new exemptions.

Speaking at a seminar yesterday morning, Prudential senior technical manager Graeme Robb pointed to the rise people affected by the increase in the residence nil rate band to £1m for married couples by 2020.

Despite the rising allowance, only one in six estates are using the £100,000 additional threshold which came into effect last year.

A freedom of information request by insurance company NFU Mutual reported in the Financial Times shows HIT bills were £5.2bn for the 2017/18 financial year. Prudential estimates this will increase by £1.2bn by 2021/22.

Robb says: “The amount of people paying IHT has increased 100 per cent in seven years and clients used to be relaxed about this, but now more and more are falling into the IHT net.”

Meldon & Co financial adviser Mark Meldon says advisers should not be struggling to assist clients with IHT as consumers often take an active interest in it.

He adds his concern with planning around exemptions is not accounting for potential changes in clients’ lives and financial situations.

Currently, gifts made between spouses or civil partners before death are only free of IHT if the time of death of the second spouse is at least seven years after the first.

Paul Lewis: Time to shake up IHT rules for non-married couples

Robb notes: “Executers will actually look back through bank accounts to identify whether any gifts have been paid.”

Robb adds advisers should consider guiding clients towards exemptions including the blanket £3,000 tax free gift allowance and the ability to give a maximum of £250 tax free to any party.

He says: “Advisers need to have a rethink about maximising exemptions, for example there is also the £5,000 sum in consideration of marriage.”

Meldon says placing life policy premiums, while expensive, are still a suitable alternative for high net worth clients, but will be less suitable for clients who may have offshore interests.

Currently there is normally no IHT to be paid if the value of a deceased estate is below £325,000 or if everything is left to a spouse, civil partner or charity. The threshold increases if your home is passed directly to biological, adopted, fostered or step children.



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  1. Article is either I ncorrect or misleading, as all gifts between spouses and civil partners are exempt under the spousal exemption, irrespective of when second death takes place.

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