In 2022, the Government raised a record £6.1bn from inheritance tax (IHT) and, with the nil rate band frozen, that figure is set to continue rising. As a result, more and more families are sleepwalking into an IHT liability. Banking Director Ian Gibson reports from an event we held recently about mitigating those risks through effective estate planning.

IHT can be traced back to a tax on estates introduced in 1796 to fund Britain’s battles against revolutionary France, and the Napoleonic Wars that followed. Three centuries on, and IHT is raising record receipts for the UK Treasury. In the financial year 2021/22, it generated a total of £6.1bn, an increase of £729m (14%) on the previous year (source: HM Revenue & Customs National Statistics, 28 July 2022). This rise is the consequence of the nil rate band having been frozen at £325,000 since 2009. That freeze is due to continue until at least 2026, resulting in more and more estates and families drifting into an IHT liability.

As this is clearly a matter of concern for any relatively wealthy client wishing to plan for the future of their family, we held an event at our Edinburgh offices in February 2023 together with experts from accountants Chiene + Tait, venture capital firm Par Equity and Adam & Company Wealth Management. Each shared best practice approaches to estate planning and highlighted the benefits of having advisers who work together.

“Succession planning can deliver profound value both financially and in terms of peace of mind,” said Lisa Travers, a Partner at the chartered accountancy firm Chiene + Tait. “It’s really important that people think about this at an early stage in their life – failure to plan ahead can come at a great and unexpected cost.”

And Lisa provided a four-step overview of how to go about deciding which options are right for you. Firstly, establish your current exposure to IHT. Then establish your goals in terms of wealth and succession, and what you require in terms of income for the rest of your life. Thirdly, ensure that your advisers work together to create a plan which, if correctly timed and implemented, will provide a highly effective succession strategy. And fourthly? “Revisit the strategy at least annually,” said Lisa. “Has anything changed in terms of your assets and objectives, or the IHT regime? Sadly, people often fail to do this and get caught out when the sad day arrives.”

We were also joined at the event by Paul Atkinson (Founding Partner of Par Equity), Simon Kay (Head of Business Development at Adam & Company Wealth Management) and my own colleague Mark Prentice (Head of Banking at Hampden & Co).

Paul, whose Par Equity network has invested more than £300m of venture capital into 70-plus firms since launching in 2008, added “Individuals worried about IHT can make lifetime gifts, although the annual limits are quite low, or they can shift some of their investment portfolio into assets that benefit from concessions allowed by HMRC that in effect operate to remove the assets concerned from their estate for IHT purposes. These assets include certain kinds of share, but also various types of business property.” Paul then explored opportunities to mitigate IHT liability through investing in the flourishing forestry sector. You can learn more about those opportunities in our podcast series The Return Of The Woodland.

Mark pointed to the value that Hampden & Co’s personal bankers bring to estate planning by working closely with a client’s other advisers to provide bespoke, collaborative solutions. He also discussed tools from Hampden & Co that can help. For instance, our interest-only retirement mortgage frees up cash from your property without swallowing up the value of your assets in the way of traditional equity release. Very few banks offer this option, and the same can be said of our account for trust funds, which can form another effective element of your estate succession plan.

And Simon rounded up the session by explaining the role of the wealth manager as one of weaving threads together to create a tapestry of a client’s overall financial picture. “We provide independent financial planning and a broad range of investment solutions. Working in the current environment in financial services where hopes and dreams are increasingly commoditised, the thing that matters more to us than anything else is personal service,” he said. “The best financial planners will address how much to gift, and when, helping their clients visualise what the impact of gifting on their current and future lifestyles might be.”

It was a view backed up by Lisa. “Planning doesn’t have to be complex or costly,” she said. “Every pound spent on good advice from accountants, wealth managers, solicitors and tax advisers should pay dividends. But it’s essential to put in place advisers that you trust, and that they are from organisations who are happy to work closely with other advisers.”

These thoughts very much reflect our own commitment to collaborating closely with other professionals wherever it can help our clients. We frequently sit down as a team with our clients’ and their accountant, wealth manager or solicitor to support them with their estate planning, as well as many other issues such as buying and selling homes, or managing trusts and investment portfolios. If you would like to develop a holistic approach to these financial challenges, and ensure that your estate succession is planned to best effect, why not get in touch?