BR Guide Second Edition

6 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 a Lasting Power of Attorney (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 BR qualification to fall outside of the charge to IHT when they sell the business, or who have excessive cash balances within the business that may limit the availability of BR IHT relief. 7 THE IHT LANDSCAPE Developing Drivers 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. Funding later life care costs represents a significant area of future uncertainty for older age groups. Current experience suggests that only a small number of individuals face significant end-of-life costs for long. This number, however, is expected to grow over time. INTERGENERATIONAL DIFFERENCES, DISCUSSION PAPER DP19/2, FINANCIAL CONDUCT AUTHORITY, MAY 2019 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 the UK in April 2019 was £600 per week (£800 per week for a place in a nursing home). (Paying for residential care, Age UK, 30 April 2019). By 2040 DEMENTIA COSTS ARE PREDICTED TO TREBLE IN UK SOURCE: DEMENTIA: POLICY, SERVICES AND STATISTICS, HOUSE OF COMMONS LIBRARY BRIEFING PAPER 07007, 10 JULY 2018 Life expectancy at birth (UK) Care related statistics SOURCE: PHE ANALYSIS OF ONS DATA £23 billion per year COST OF DEMENTIA IN ENGLAND, MORE THAN THE COSTS OF CANCER, HEART DISEASE OR STROKE 225,000 people WILL DEVELOP DEMENTIA THIS YEAR (ALZHEIMERS SOCIETY, 2019) WOMEN MEN ONS PRINCIPAL PROJECTION UPPER CONFIDENT LIMIT LOWER CONFIDENT LIMIT 70 72 74 76 78 80 82 84 86 1983 1993 2003 2013 2023 78 80 82 84 86 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 2022-23 2023-24 0 1 2 3 4 5 6 7 SOURCE: OBR AND HMRC, MARCH 2019 £ BILLIONS HISTORIC PROJECTED