3 ways financial planners and solicitors can help protect your clients against the Budget reforms to Inheritance Tax

It’s only natural that your clients want to preserve their legacy and ensure their wealth is passed on seamlessly to their future generations.

To achieve this, it’s crucial for them to regularly review and update their estate plan, making sure it reflects their current circumstances, assets, and any changes to legislation, such as those we saw in October’s Budget.

The Autumn Budget – the first of the new Labour government – contained several significant reforms to Inheritance Tax (IHT), including freezing the nil-rate bands until 2030, making pensions liable for IHT, and modifying Business and Agricultural Reliefs.

These changes have significant implications for your client’s estate planning, as they will likely increase the number of estates subject to IHT and raise the tax liability for those already within its scope.

The Times reports that around 4% of estates currently pay IHT but estimates it could rise to around 7% by 2030 due to the recent reforms. Meanwhile, the BBC notes that IHT currently brings in around £7 billion a year and that the new measures are expected to raise an additional £2 billion.

There are several strategies your clients might consider to help mitigate the impact of these changes and protect their estate for their beneficiaries. Implementing these strategies will require a collaborative approach, combining legal expertise and financial planning to ensure they are compliant and best serve your clients.

So, read on to discover three ways financial planners and solicitors can help protect your clients’ wealth against the Budget reforms to IHT.

1. Ensure your clients make the most of their nil-rate bands

For the 2024/25 tax year, the nil-rate band is £325,000 and is set to remain frozen until 2030.

Additionally, if your clients pass their primary residence to their direct descendants – children, stepchildren, adopted children, or grandchildren – they may also qualify for the residence nil-rate band. This provides an additional £175,000 tax-free allowance.

By combining the nil-rate band and residence nil-rate band, clients can pass on up to £500,000 in assets (including property) without incurring IHT.

For married couples or civil partners, any assets left to a surviving spouse or partner are exempt from IHT. Furthermore, if one partner doesn’t use the entirety of their nil-rate bands, the unused portion can be transferred to the surviving partner.

So, by ensuring they leave their main residence to their direct descendants and combine their nil-rate bands with their spouse or civil partner, your clients could potentially pass on up to £1 million of their estate IHT-free.

A financial planner can help your clients structure their estate plans efficiently, ensuring they maximise the allowances and reliefs available. Meanwhile, as a solicitor, you can assist in rewriting their wills and ensuring the strategies are legally compliant.

2. Help your clients to establish a trust

Most assets your clients transfer into a trust are typically not considered part of their estate by HMRC, provided the transfer meets certain conditions. This means that assets held in trust are usually not liable for IHT.

However, if your clients pass away within seven years of making the transfer, the assets may still be subject to IHT at a tapered rate depending on how long they survived.

There are various types of trusts, each with unique rules, tax implications, and management costs.

While establishing a trust can be an effective way for your clients to reduce their IHT liability and protect assets for beneficiaries, the process is complex and requires careful planning.

So, your clients should consult a financial planner to help them choose the trust that best aligns with their estate planning goals.

Establishing a trust also often requires legal assistance as the trust deed – the document that sets out the trust’s terms – must be precise and legally compliant. In some cases, the deed may also need to be notarised or witnessed to ensure its validity.

3. Explore life insurance policies with your clients

If your clients have a life insurance policy, it can deliver their beneficiaries a payout upon their death that can help cover the IHT bill.

In some cases, the right policy could cover all remaining IHT liabilities after considering allowances, reliefs, and trusts. Though this doesn’t reduce the IHT payable, it could assist your client’s loved ones in paying a bill quickly without having to use other assets within their estate.

Placing a life insurance policy in trust is often one of the most effective strategies for maximising tax efficiency. This approach ensures that the policy payout is excluded from the estate and therefore not subject to IHT.

A financial planner can assist your clients in setting up the trust properly. They can also help them identify the level of coverage they need, explore different policy types and providers, and complete the necessary paperwork.

By consulting a financial planner, your clients can explore all the available options and determine if taking out a life insurance policy is the most efficient strategy for maximising the legacy they leave.

As a solicitor, you can help ensure your client’s wishes are upheld if disputes or complexities arise regarding the policy. You can also update legal documents, such as wills or trusts, to reflect significant life changes like divorce or remarriage, which may affect the beneficiaries or the outcome of the policy.

Get in touch

Solicitors and financial planners play an important role in estate planning, ensuring that your client’s wishes are legally compliant, tax-efficient, and aligned with their financial goals.

To find out more about how we can collaborate and help each other’s clients improve the efficiency of their estate plans, particularly in light of the recent Budget reforms, get in touch.

Email info@fbwealth.co.uk or call us on 0333 1122211.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.