New clients drive Inheritance Tax planning enquiries

Advisers are seeing a surge in demand for advice on Inheritance Tax (IHT) planning with new clients accounting for most of the enquiries, new research* from investment manager Downing shows.

In Downing’s survey of UK financial advisers and wealth managers, more than two out of five (43%) say enquiries are mainly coming from new clients, while 17% say enquiries are mainly coming from existing clients, with 39% saying it’s a mix.

Downing’s study shows enquiries were already rising before the Budget in October – 84% reported a rise in enquiries over the past 12 months, with 24% seeing a substantial increase.

Since the Budget, 94% have seen a rise in clients asking about IHT planning, with 32% saying they have seen a substantial increase.

More than nine out of ten (91%) questioned expect a rise in IHT enquiries over the next 12 months, with 46% forecasting a substantial increase.

Budget impact: freezing thresholds and tax relief changes

October’s Budget saw the continued freeze on IHT thresholds at £325,000 plus £175,00 if a home forms part of the estate until 2030. It also included pensions as part of an estate subject to consultation.

The Chancellor also changed the potential tax relief available on Business Relief qualifying assets: currently, all Business Relief assets benefit from 100% IHT relief. After April 2026, unlisted Business Relief assets and Agricultural Relief assets will benefit from a £1,000,00 allowance, where the assets will continue to benefit from 100% IHT relief. Thereafter, the tax relief will be reduced to 50% (an effective IHT rate of 20%). AIM-listed shares will not have the £1,000,000 allowance.

Currently more than six out of ten (61%) of advisers and wealth managers estimate 20% or more of their business is accounted for by IHT planning and advice^[1]. Within three years more than eight out of ten (85%) estimate 20% or more of their business will be driven by IHT planning and advice^[2].

However, more than three-quarters (77%) estimate 20% or more of their client base currently has an IHT liability with 7% estimating it is more than 40% with an IHT liability^[3].

Within three years nearly nine out of ten (88%) estimate 20% or more of their client base will have an IHT liability^[4] with one in ten (10%) believing more than 40% will have an IHT liability.

Concerns of cost and complexity deter clients from advice

The research found that concerns about the cost and complexity of IHT advice are the main reasons stopping clients from seeking help – 68% identified cost as the main barrier while 60% pointed to a belief that advice will be complex.

Around one in seven (14%) of advisers and wealth managers said clients are reluctant to think about wills and death, while 20% say clients believe IHT will not affect them. Nearly half (46%) say clients are aged 50-plus on average when they first enquire about IHT.

Clients are most likely to be using trusts or gifting from income to mitigate IHT – 64% say advisers are using trusts and 63% gifting from income while a third (34%) are gifting lump sums and 12% are using Business Relief plans.

Mark Dunn, Head of Retail Sales at Downing says: “Advisers were reporting big increases in the number of clients enquiring about IHT planning and advice before the Budget and are expecting further increases in the coming years.

IHT** raised £7.5 billion in the 2023/24 tax year compared with £7.1 billion in the previous year and receipts are forecast to continue to rise, with the Budget changes expected to further increase the number of estates affected by IHT.

It is clear the demand is coming mainly from new clients rather than from existing ones wanting further advice to adapt to proposals in the Budget. That is driving demand from advisers for support from providers of specialist planning solutions.”

Downing’s IHT planning solutions aim to provide IHT relief after two years, if held at the date of death, by giving investors the opportunity to invest in Business Relief-qualifying businesses and qualifying companies listed on AIM.

Downing Estate Planning Service invests predominantly in asset-backed trading businesses, in sectors such as care homes, lending to property developers and renewable energy assets. The Downing AIM Estate Planning Service invests in a diversified portfolio of 25 to 40 companies that are listed on AIM, and is also offered in an ISA wrapper.

Sources:

*  Downing commissioned independent research company PureProfile to interview 100 UK financial advisers and wealth managers using an online methodology during November 2024.

** HMRC tax receipts and National Insurance contributions for the UK (annual bulletin) - GOV.UK

Important notice

‍Opinions expressed represent the views of the author at the time of publication, are subject to change, and should not be interpreted as investment or tax advice.

Important notice: This article is for investment professionals only. This article is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. No reliance should be made on this content to inform any investment of tax planning decision.

This content contains information that is believed to be accurate at the time of publication but is subject to change without notice. The explanation of all of the tax rules set out have been written in accordance with our understanding of the law and interpretation of it at the time of publication.

Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Downing as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.