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A Third of All Financial Advice Clients to be Impacted by Freeze to Inheritance Tax Thresholds

A survey of financial advisers, carried out by Octopus Investments, has found that one-third of clients are likely to be affected by the frozen inheritance tax thresholds announced in this year’s budget.

Freeze to Inheritance TaxMore estates than ever before are expected to receive an inheritance tax bill. The survey also indicated that a large proportion of those affected had not understood how they would be impacted by the change and had therefore not taken any measures to mitigate their tax bill.

In addition to this, The Organisation for Economic Cooperation and Development (OECD) has suggested an increase in inheritance tax to help pay the huge debt faced by many countries following the pandemic and to help combat the growing wealth inequality expected in the next decade.

Baby boomers have amassed a disproportionate amount of wealth as financial assets such as pensions and property have increased in value, leading to greater wealth inequality.

This is an area where financial advice can make a massive impact. The survey revealed that 72% of financial advisers were of the opinion that clients would need to increase lifetime gifting as a way of avoiding the 40% tax. The advisers questioned also recommended the following financial planning measures:

  • Redirecting pension contributions into a spouses pension
  • Maximising ISA allowances and utilising any other long term saving vehicles.
  • Reducing or stopping pension contributions
  • Withdrawing tax free cash to reduce the potential second LTA charge at 75
  • Choosing to crystallise funds earlier
  • Recommending lifetime allowance protection
  • Increased use of tax efficient investment

The nil rate band for income tax currently sits at £325,000, a sum that has been frozen since 2009 and will continue through to 2026. The impact of COVID is expected to generate a 20% spike in the number of families facing large inheritance tax bills, after unexpected deaths have followed a complete lack of tax planning.

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