IHT Planning

Talking about Inheritance Tax (IHT) (which we weren’t!) it’s now been almost ten years since the nil rate band (NRB) was changed, staying at £325,000 since 2009.

But we are in a very different world than 10 years ago and the size of many people’s estates has grown dramatically.  It’s no surprise therefore that the amount of IHT being paid has substantially increased.

According to HMRC statistics, the number of people with estates worth over £1m has almost doubled in the last ten years alone, whereas the NRB allowance continues on at the same level

Where are IHT tax revenues coming from?

House price growth is probably one source of this wealth and the fact that we’ve had a bull market for around a decade will only have increased wealth as well.

As a consequence, the Government’s revenues from IHT are predicted to grow in an almost linear fashion.  Nevertheless the Government is pondering inheritance tax simplification

So why reform the system?   Isn’t more IHT a good thing for the Government’s coffers ? Greater revenue to go on schools, hospitals etc.  But,  is it right that, after working all your life and paying taxes, your estate might need to be broken up on death to pay yet another tax?

Particularly when the NRB allowance doesn’t increase and hence becomes more and more irrelevant.

But what’s the answer? Indexation of the NRB in line with inflation, as is planned to happen from April 2021, would at least be a start; perhaps an even better way would be to link it to average estate size.

IHT has a number of exemptions, perhaps the most useful being the normal expenditure exemption. This allows regular gifts to be made out of income and, provided that the gifts do not reduce the donor’s usual standard of living, there is no limit to the amount that will be immediately exempt.

There is no need to wait for seven years and the amount that can be given away each year can increase as excess income increases.  But what if gifts have to be made from capital, not income?

The NRB is available during lifetime, not just on death.  With forward planning, it can effectively be recycled by gifting capital every seven years.  Using this strategy can remove a great deal of wealth from the estate very tax efficiently.  But, in an uncertain world, can taxpayers afford to give assets away?

The reality is that the market is finding workarounds to the limitations of the NRB. Trusts are a particularly common solution. Used the right way, these can often serve two masters – potentially allowing access to capital while creating a timetable to have funds outside the estate within a set period.

With an increasing lifespan, many clients are right to be wary of entirely signing away their estate beforehand, no matter the IHT efficiencies. Discounted gift trusts, flexible reversionary trusts and gift and loan trusts all offer some trade-off between IHT efficiency and access. Depending on the clients’ needs, these can help ensure an IHT strategy that suits their needs.


The Perils of Offensive Tweets

Nothing to do with finance but…

Here’s something we all know, but is important to be reminded about…

Two of the most successful films in the past few years are Disney’s ‘Guardians of the Galaxy’ films.

Both have made a lot of money, been widely praised, and have turned the actors into household names.

But the films’ creator/director James Gunn was sacked from making the next sequel – because of offensive tweets he sent 10+ years ago.

And this reminded me…  if someone like him – who’s made his employer £billions – can be sacked for this sort of thing, anyone can.

I’ve spoken with my kids about this, and how essential it is to remember that anyone can see what they post – not just the people it’s intended for.

I’ve told them about the times when my company has interviewed people and been impressed by them, only to check their social media pages and realise they aren’t professional or appropriate enough for us.

So this Tip is just flagging something we all know. But it’s worth reminding ourselves about. And/or telling our children and newer colleagues. As I said to my kids…

… assume the ‘Person You Most Want To Impress’ read everything you’ve posted – would there be anything you wished they hadn’t seen?

… assume your biggest ‘enemy’ read it, is there anything there they could use to hurt you?

If so…

Action Point

… remove it now!


(With acknowledgement to Andy Bounds who reminded me of this maxim.  See andybounds.com)

Diversify, Diversify, Diversify

One of the main safety features of any investment, be it Pension Funds, ISAs or OEICS (Unit Trusts to us oldies) is the ability of the fund manager to diversify his or her portfolio.  Most Multi Asset Portfolios have this facility but that may not be the case with older style Funds where they were maybe, for example, all UK companies or all Japanese Companies or even With Profits in which case nobody knew.

A diversified portfolio should be able to invest in UK Equities,US Equities, European Equities, Asian ex Japan Equities, Japan Equities, Smaller Companies, Emerging Market Equities, Hedge Funds, Income Funds, UK Property, European Property, Fixed Interest (Gilts and Corporate Bonds), Convertibles, and the like etc.

Almost certainly however, in the case of Ethical Funds, the fund manager will probably give Gilts a miss, due to Government (the issuer of Gilts) raising money for defence projects.  Armaments is one of the things treated as non-ethical.

The mix of the above will also depend on how much risk the manager is aiming to take.  That’s why we carry out a risk profiling assessment to ensure your views are in line with the selected Portfolio.

If you think your funds are not well diversified, why not contact us and we can have a look and let you know a) is it’s diversified and b) if it matches your risk profile.  Our telephone number and our email address are well published on the website.

The Rise of Ethical Investing

As most of my clients know, I offer Multi Managed Ethical funds as a matter of course for both my new prospective clients and my existing clients at Client Review Stage.

Surprisingly, a number of other advisers have enquired why I do this.  But the answer is simple.  Firstly because I believe it is my duty as an adviser to bring Ethical Investing to the attention of Clients.  Secondly, because I believe it is another valid option for my clients to have.   And thirdly because the FCA (Financial Conduct Authority) believe advisers should offer this option.

Times have changed out of all recognition and the choice of investments associated with Ethical and Socially Responsible investing has dramatically increased over the last few years.

When I started out in this business, if someone mentioned Ethical Investment, your thoughts automatically turned to Friends Provident’s Stewardship Fund.  Yes there were others, but the Stewardship Fund was probably the leading light in this sector.

Now there is a much greater choice with Multi Manager Funds available from Investment Houses such as Parmenion,  Tatton, King and Shaxson and 7IM to name but a few all with a range of funds geared to the client’s risk profile.

And its not just Investment Funds.   Pensions Funds are also available as an option when saving for retirement.

High costs and poor performance used to be arguments against investing Ethically but that has all changed and because of the growing popularity of Ethical Investing, I have taken the opportunity of joining UKSIF (The UK Sustainable Investment and Finance Association) and am looking forward to attending their Annual Conference in November in London to learn more about this important sector.

If you would like to find out more about Ethical and Socially Responsible Investing, why not give us a call or drop us an email and we’ll be happy to have a chat.