Estate Planning Guide

7 THE ESTATE PLANNING LANDSCAPE A summary of the main IHT rules and allowances that currently apply can be found in the appendix of this Guide. This section focuses on the factors which are shaping the growing demand for estate planning and have created a wide range of needs and planning scenarios. IHT Receipts IHT receipts are on the rise and with the conventional nil rate band (NRB) frozen since SOURCE: OFFICE FOR BUDGET RESPONSIBILITY, PUBLIC FINANCES DATABANK, DECEMBER 2017 PROPORTION OF UK DEATHS LIABLE TO IHT (2001-02 TO 2014-15) The Estate Planning Landscape Setting the scene 1.1 2009 and house prices rising, the number of estates liable to IHT is also climbing. Even the introduction of the residence nil rate band (RNRB) will only temporarily slow the growth in the amount of IHT collected, primarily because of the restrictions that apply to the RNRB. So, mitigating IHT is no longer just a problem for the very wealthy, but now affects the mass affluent as well. Despite reports of a slow-down in the housing market, according to HMRC, IHT receipts were a record £5.2 billion in 2017/18. IHT receipts have increased year-on-year since 2009/10, on average by over 12% each year, while the last several years have shown an upward trend in the number of estates liable to IHT. UK Demographics The population is growing, partly because the population is ageing; between 1975 and 2015, the percentage of the population that was 65 years or older increased from 14.1% of the population to 17.8%, and this cohort is projected to continue to grow to nearly a quarter of the population by 2045. This is an important consideration for the provision of health and social care services and pensions, as well as for the numbers of households looking at their succession arrangements. Life Expectancy Life expectancy due to medical and lifestyle changes has been increasing for decades and life expectancy continues to increase, meaning our pensions and investments need to last longer. We also need to take this into account when planning how estates can be efficiently passed to the next generation. In 1908, when the State Pension was first introduced for those aged 70 and over, a woman of this age was expected to live on average an additional 9.3 years, and a man, 8.4 years, meaning pensions needed to last around 9 years. In 2015 men and women at this age were expected to live for almost 21 more years and the upward curve is set to continue. Dementia According to the Alzheimer’s Society there are 850,000 people living with dementia in the UK. One in every 14 of the population aged 65 years and over has dementia and the number of people with dementia in the UK is forecast to increase to over 1 million by 2025 and over 2 million by 2051. The cost of dementia in the UK is £26 billion a year, of which £5.8 billion is paid by people with dementia and their families for help with everyday tasks that are provided by professional care workers, such as washing, dressing and eating. This is a strong driver for people not only to plan their retirement incomes, but to also take into account the level of control and flexibility they have over their IHT mitigation arrangements. The traditional pattern of spending reducing as people age has been disrupted by this change – spending can increase in the last years of life as more care is required. PROJECTED INCREASE IN GOVERNMENT IHT TAKE FEMALE AND MALE PERIOD LIFE EXPECTANCY AT AGE 65 PROJECTION PERIODS UK (2016-2066) SOURCE: ONS STATISTICAL BULLETIN: PAST AND PROJECTED DATA FROM THE PERIOD AND COHORT LIFE TABLES, 2016-BASED, UK: 1981 TO 2066, 1 DEC 2017 PROJECTED NUMBER OF PEOPLE WITH DEMENTIA (UK) SOURCE: ALZHEIMERS SOCIETY £2bn £0 £4bn £6bn £8bn 2018 2030 2036 2042 2048 2054 2060 2066 2024 0 18 20 22 24 26 28 2001-02 2005-06 2009-10 2002-03 2006-07 2010-11 2003-04 2007-08 2011-02 2013-14 2004-05 2008-09 2012-13 2014-15 7% 3% 6% 2% 5% 1% 4% 0% 2051 2025 2017 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 2021/22 2020/21 2022/23 2018/19 2019/20