On average people will live in their home for about 20 years, initially moving more frequently as they climb the ladder before settling down. A home is a life decision not an investment per se, but during the period in which a house is held the value may increase - people make home improvements, mortgages are paid down, inflation compounds, and invariably demand for property increases. These factors have led to a significant growth in property prices despite various financial ‘headwinds’ – please see the graph below.

The family home is often the primary asset in an estate and this appreciation in value has left many exposed to Inheritance Tax (IHT)unexpectedly - the Nil Rate Band (NRB) has remained unchanged at £325,000 per-person since 2009 (the NRB is the threshold above which IHT is payable).Furthermore, IHT is expected to be reviewed under a change of government later this year. Add in personal effects, savings and any investments held, and the threshold can quickly be breached. The “accidental millionaire”.

Despite the introduction of the Residence Nil Rate Band(RNRB), £175,000 per qualifying person, the increased value of estates has led to a marked increase in the amount of IHT paid by the UK population, and this trend is anticipated to continue based on The Office of Budget Responsibility (especially now the NRB freeze has been extended until April ’26).

IHT can be an emotive topic: it is a taxation on death, and it is a “double taxation” (a taxation on assets that were accumulated during life, after tax was paid). It is sometimes referred to as a “voluntary tax” due to the options available, and the liability can put great strain on beneficiaries who are already coming to terms with the death of a loved one.

Gifting, utilising certain Trusts, insurances and of course spending the money (you could consider all purchases at a 40% discount),can assist in lowering the contingent IHT liability and reducing the stress this can generate at a most delicate time.

An area which is less known, and available to those with some liquidity, is the tax reliefs available for investment into Business Relief (BR) qualifying assets. This piece of legislation has been in place for over 40 years and enables an investor to retain control of their monies, seek investment returns and once held for 2 years, gain exemption from IHT on death– BR assets effectively move outside of the estate for standard IHT purposes, enabling other assets to utilise the tax free £325,000pp allowance.

The investment returns are principal and there are a range of different options available, spanning a wide continuum of risk tolerances and return profiles. These investments can help diversify a portfolio and offer value on a purely investment basis, before the considerable tax advantages ‘boost’ potential returns.

In addition, being able to retain control of your funds can be of real importance to people, you simply never know what the future holds. The quick qualification for IHT relief – 2 years rather than the 7 years for gifting – can create greater certainty and provide peace of mind.

Estate planning should be undertaken as part of a wider financial plan and should seek to meet your goals, hopes and attitude to risk. If you would like to discuss Estate Planning options, or any other financial matter, please do not hesitate to contact me.

Rob Cowsill, IFA – 01752 205205  

‍