Jess Franks, Head of Investment Products at Octopus Investments

Picture a client named Clara. She’s in her mid-seventies.

Clara is a widow and she’s lived in the same house for most of her life. She’s reached out to you to discuss her estate.

Inheritance tax wasn’t something she’d ever thought would affect her. But almost inconceivably, her home is now worth many multiples of what she and her late husband paid for it.

And while her assets have soared to ever higher values, the allowances available for an estate haven’t budged in that time.

The nil rate band has been frozen at £325,000 since 2009. The residence nil rate band is set at £175,000. Neither is likely to increase any time soon against a backdrop of high inflation.

So, unsurprisingly, Clara’s estate now faces an inheritance tax liability.

She doesn’t know what her options are, or even where to start.

And here’s the thing – Clara isn’t alone.

The widening inheritance tax net

Inheritance tax receipts have been growing at a remarkable rate, by almost £1 billion a year.

This means more families will be dragged into the net, and those families already affected can expect more significant liabilities to plan for.

We also need to consider the broader picture of inheritance tax. This is an area families find complex and often lack a good understanding in. There are plenty of myths that persist. It’s not uncommon for clients to assume the only way to plan for inheritance tax is to make gifts, or for clients to believe you can gift the family home and continue to live in it and escape inheritance tax.

There is an urgent need that financial advisers can address here and help families pass wealth to the next generation.

In doing so, you can also unlock a growth opportunity for your business.

Source: HM Revenue & Customs, April 2023

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