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£400.000
£350.000
£300.000
£250.000
£200.000
£150.000
£100.000
£50.000
MARKET DRIVERS
Business Property Relief helps address
some of the more complex issues
associated with estate planning, where
conventional IHT strategies come up
short for today’s investors.
FROZEN THRESHOLDS
AND HOUSE PRICE RISES
Many of the post-war baby-boomer
generation have certainly been blessed;
experiencing long periods of economic
growth, participating in buoyant
property markets and being set to live
longer than any previous generation.
Baby-boomers are estimated to control
about 80% of private wealth in the UK
and make up around a quarter of the UK
population (ONS).
However, with these benefits come
additional cares and responsibilities.
Although some social commentators
would have us believe that this was
the selfish “me first” generation, in
reality they know that financially things
are going to be more difficult for their
children and grandchildren, and so they
want to pass on as much of their wealth
as possible. Baby-boomers are now of an
age where these questions start to take
precedence in their financial planning.
This means taking sensible steps to
mitigate inheritance tax. Unmitigated
inheritance tax will claim 40% of the
value of an estate above the threshold
of £325,000 (£650,000 for couples).
With average UK house prices not far
off £200,000 (and above £400,000 in
London) many more people will find
themselves above the threshold than in
previous years, simply by virtue of being
home owners, rather than being big
earners or astute investors. It’s easy to
see how IHT has gone from being solely
an issue for the most wealthy to being
something that the mass affluent now
have to take into consideration. And
we know that the threshold is frozen
until at least 2018, at which point it is
forecasted to bring in something like
£5.8 billion in tax revenue per annum,
and capture 5,000 more estates than it
does today (OBR). It will be difficult for
the treasury to do without this income -
although with so called “grey votes” on
offer, there is a temptation for
politicians to promise to lift the
threshold.
BPR products that utilise BPR can
provide 100% relief from IHT. This will
not be suitable for everybody, but for
those who can afford the minimum level
of investment and have the right risk
appetite, it is an effective IHT relief.
CHANGING DEMOGRAPHICS
AND UNCERTAINTY
Conventional IHT planning depends
upon the use of gifts and trusts, and
of course these will still form the core
of many advisers’ recommended
strategies. But longer life expectancy
throws a spanner in the works - it is
impossible for clients to know if they will
need those funds at a future date, and
they cannot fully access them if they
have been gifted or placed in a trust.
Retirements of 20, 30 or 40+ years are
becoming commonplace. This is a very
long timeframe to plan for. Having the
funds available to continue enjoying
retirement, however long that might
be, will be a priority for clients. So will
knowing that they can afford long term
care if it is needed.
% deaths
subject
to IHT
deaths
per year
(‘000s)
deaths
subject
to IHT
(‘000s)
2013/14 4.8
548.7 26.2
2014/15 6.5
547.9
35.9
2015/16 8.0
547.6
43.8
2016/17 9.0
548.0 49.1
2017/18 9.6
549.0 52.7
2018/19 9.9
550.6 54.5
RISING ASSET PRICES VS THE NIL RATE BAND
(1975-2015)
Threshold / Nil Rate Band Uk house prices
GR London house prices
FTSE all share
In 1981 men and women would have
expected to spend 13 and 17 years in
retirement respectively. Today it is 19
and 22 years.
TIME IN RETIREMENT (%)
“Over the last forty years, asset prices have increased faster than the nil rate band”
working life (men)
working life (women)
retirement (men)
retirement (woman)
(e)
