Below is an extract from an article published in ‘Tents’ Investment Focus magazine by Mark Green, Head of Tax and Estate Planning at Legal & General. The results of the poll he refers to support our experience at Paradigm Capital that Inheritance Tax (IHT) planning is something that often should be discussed but is avoided by clients whenever possible.
“In a recent poll* among 2,000 parents with children up to the age of 18, over half (56%) of the people questioned said they are currently saving for their children. In the main, the amount is quite modest – three out of four (75.1%) said they’re saving between £10 – £50 per child each month. You can imagine most parents would not want their children to pay further tax on these savings.
It is surprising, therefore, that many people allow their hard-earned wealth to be subjected to IHT when the taking of a few simple steps could prevent this.
Estate planning research** reveals that most people (69%) are aware of the potential IHT hit. Why, therefore, have many (69%) taken no action towards mitigating IHT beyond making a will?
Get a “roundtoit”
The top three reasons given by people in the survey for putting off reducing the potential IHT liability on their estate are simply “not getting around to it” reasons:
- It’s too far off for me to consider = 38%
- I keep putting it off = 24%
- I don’t know where to start = 15%
This inertia inevitably means that people will continue to pay IHT unnecessarily.
With the IHT nil rate band frozen at £325,000 until April 2015, then rising from 2015 with the Consumer Price Index as the default indexation assumption, it is not difficult to see that the amount of IHT paid unnecessarily will go up over the next few years.
Interestingly, the worry that people will not be able to access their wealth if they protect it from IHT is low down the list. Less than 1 in 10 (9%) in the survey claim that the reason for putting off taking action is the commonly quoted concern that they might lose control of access to their money (or home) as they grow older.
Is inertia the enemy?
I often hear advisers say that their clients simply do not want to engage in discussions about estate planning. Overcoming such inertia and finding effective ways of communicating with clients who have potential estate planning needs, is a major challenge. However, defeating the enemy (Inertia) may not be as difficult as it first seems.
If we can simply make people more aware of the accepted legitimate routes available to plan effectively for IHT, the latest research suggests that will be enough to break through the barrier of complacency. After being presented with the facts around IHT, half (50%) of the people surveyed say that they are keen to learn more about their options around IHT mitigation.
Over half (56%) of the people spoken to say they want to achieve an equal balance between enjoying their retirement and leaving their family (or chosen beneficiaries/ charities) whatever was left of their wealth after they had “gone”.
The good news is that when people are looking for help they seek professional guidance and, in our survey IFAs, (30%) and solicitors (26%) are at the top of the list of likely sources of advice.”
Source: Investment Focus, Spring 2012
If you would like to discuss IHT planning, please contact Paradigm Capital at firstname.lastname@example.org or on 01273 321 223.
The information contained is targeted at consumers based in the UK. It should not be taken as advice or guidance, and Paradigm Capital Limited does not guarantee the accuracy or content provided. If you wish you to receive financial advice, please contact Paradigm Capital as above.
* Onepoll Parent Research conducted on 17th October 2011 for Legal and General
** Research with 200 respondents from the Legal and General consumer panel from September to October 2011