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Estate planning takes back seat as we witness a decade of more families being caught by inheritance tax net

Following HMRC’s announcement of record inheritance tax (IHT) receipts for the last tax year, Canada Life warns that most over 55s aren’t using even the simplest of solutions to reduce the potential inheritance tax liability on their estate, such as gifting and trusts.

According to Canada Life’s research, less than two in five (35%) UK adults aged 55+ have given or plan to give gifts that they would have otherwise left as an inheritance. The remaining two-thirds (65%) say they have not and do not plan to. Even among higher earners (those with an income of over £45k), who will be more likely to have estates falling into the IHT trap, a significant 38% have not given gifts and do not plan to in future.

Rising asset values over the last decade, particularly in property, has meant that more estates have been drawn into the IHT tax net. Rising house prices have led to a boom in IHT receipts, which almost doubled between 2010 and 2018, and a near 50% uplift in the number of estates taxed from 14,700 at the beginning of the decade to 21,800 now.

Canada Life is urging those with larger estates may want to consider alternative retirement strategies if they want to maximise new estate planning opportunities.

Canada Life’s recent Pensions, Property and Inheritance Planning report highlights using trusts, gifting and equity in property to help fund retirement, preserving favourably taxed pension wealth that could help benefactors pass more of their estate tax efficiently.

Neil Jones, Wealth Management and Tax Specialist at Canada Life, said:

“With the wide range of planning solutions now available, there is no reason why benefactors can’t maximise the value of their estates that are passed on.  But our research and rising inheritance tax receipts show many people are simply not taking advantage of these opportunities.

“It’s crucial to use your reliefs, exemptions and allowances. Starting any planning early is essential and there’s a range of trusts available that can enable you to make sure more of your money goes to your beneficiaries whilst reducing the amount of tax payable when you die. Re-ordering the way you disinvest can also bring about significant benefit from an estate planning perspective.

“This area of financial planning is complicated and there is no substitute for seeking out the help of a professional financial planner.”

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Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority.

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Stonehaven UK Limited and MGM Advantage Life Limited, trading as Canada Life, are subsidiaries of The Canada Life Group (U.K.) Limited. Stonehaven UK Ltd is authorised and regulated by the Financial Conduct Authority. MGM Advantage Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.