BR Guide FINAL 20 Feb

8 THE IHT LANDSCAPE This makes gifting assets to their beneficiaries much more problematic, as the donor may need those funds. Consequently, access to funds is an important consideration; conventional estate planning solutions such as gifts and trusts require donors to give up access to their funds and usually sacrifice investment growth and thereby any way to offset inflationary erosion. The increase in illnesses which cause mental incapacity also necessitates a solution which works when an LPA is in place. With the conventional nil rate band (NRB) frozen since 2009 and house prices rising, the number of estates liable to IHT is rising. Even the introduction of the residence nil rate band (RNRB) will only temporarily slow the growth in the amount of IHT collected, because of the restrictions that apply. So, mitigating IHT is no longer just a problem for the very wealthy, but now affects the mass affluent as well. The two-year qualification period of BR qualifying investments (as opposed to seven years for gifts and trusts) can help the very elderly (who perhaps previously felt they would not be caught in the IHT net) or people in poor health who have not made any provision for estate planning and may otherwise feel they have left it too late. Finally, BR qualifying investments are a good fit for business owners who are either seeking to preserve their IHT exemption when they sell the business, or who have excessive cash balances within the business that may limit the availability of BR IHT relief. 9 THE IHT LANDSCAPE Growing Market 1.1 BR qualifying investments are considered riskier than some other estate planning solutions. However, there are some key drivers behind a meaningful increase in the market for investment based IHT solutions that utilise BR. The baby-boomer generation (those born between 1946 and 1965) are estimated to control 80% of private wealth in the UK. As they are now starting to retire, their financial objectives are changing, and they are starting to consider estate planning. However, they are also faced with making provision for much longer retirements than any previous generation as a result of increasing life expectancy. The cost of long term care can be substantial, with expectation that it will increase with time and depending on the level of care required. Regulated advice is clearly an important aspect of financial planning for later life. OCCASIONAL PAPER 31, AGEING POPULATION AND FINANCIAL SERVICES, FINANCIAL CONDUCT AUTHORITY, SEPTEMBER 2017 Today, people are faced with planning for retirements that could last 20 or 30 years - or longer. In addition, there may be an uptick in spending patterns if there is a need to fund long term care. The average stay in a care home is currently two and a half years and the average cost of a care home in England in 2016 was £537 a week. (What you need to know about care home fees, Saga, 2017.) CARE RELATED STATISTICS Every 3 minutes SOMEONE IN THE UK DEVELOPS DEMENTIA Every 5 years THE RISK OF DEVELOPING DEMENTIA AFTER THE AGE OF 65 DOUBLES SOURCE: ALZHEIMERS RESEARCH UK, DEMENTIA STATISTICS HUB, 2016 35% of women BORN IN 2015 WILL DEVELOP DEMENTIA 24% of men HISTORIC AND PROJECTED INCREASE IN GOVERNMENT IHT TAKE 2009-10 2014-15 2010-11 2015-16 2011-12 2016-17 2012-13 2017-18 2013-14 2018-19 2019-20 2020-21 2021-22 0 1 2 3 4 5 6 7 SOURCE: OBR AND HMRC, JULY 2017 £ BILLIONS Life expectancy at birth (UK) MEN 2010 MEN 2030 WOMEN 2010 WOMEN 2030 70 75 80 85 SOURCE: FUTURE LIFE EXPECTANCY IN 35 INDUSTRIALISED COUNTRIES: PROJECTIONS WITH A BAYESIAN MODEL ENSEMBLE, THE LANCET, 21 FEBRUARY 2017