Financial advisers are using a range of methods to help clients mitigate potential inheritance tax (IHT) bills, according to a study by TIME Investments and Cicero Research. The most popular methods include discretionary gift trusts, discounted gift trusts, taking advantage of business property relief and using a protection plan in trust. The survey found that 63% of advisers view IHT planning as an important part of their services, with 36% believing it will become more vital in the next two years. The growing demand for advice on IHT and estate planning is being driven by factors such as the increasing value of assets and property, the use of pensions in estate planning, changes to IHT limits, and an aging population.

One common method used by financial advisers to reduce IHT bills is to set up discretionary gift trusts. These trusts allow individuals to gift money or assets to their beneficiaries while maintaining some control over how and when the funds are distributed. The advantage of this method is that it reduces the value of the individual’s estate for IHT purposes, as well as potentially reducing the amount of IHT payable on the trust assets in the future.

Another method is the use of discounted gift trusts. These trusts involve gifting a sum of money to the trust, which is then used to purchase an income-producing asset, such as an investment bond. The individual retains the right to receive a proportion of the income generated by the asset for a fixed period of time, after which the remaining assets in the trust pass to the beneficiaries. This reduces the value of the individual’s estate for IHT purposes, as well as potentially reducing the amount of IHT payable on the trust assets in the future.

Taking advantage of business property relief is another popular method used by advisers. This relief allows certain types of business assets, such as shares in unquoted companies or land used in a business, to be passed on free of IHT. This can be particularly useful for individuals who own a business or have assets invested in qualifying business property, as it can help to reduce the overall IHT liability.

Using a protection plan in trust is another method used by advisers to reduce IHT bills. This involves taking out a life insurance policy and placing it in trust, with the beneficiaries being the individuals who will receive the proceeds of the policy upon the policyholder’s death. By placing the policy in trust, the proceeds are not considered part of the individual’s estate for IHT purposes, potentially reducing the IHT liability.

The popularity of these methods highlights the growing importance of IHT planning for financial advisers and their clients. With the value of assets and property increasing, particularly in London and the south east, and an aging population, there is a greater need for effective estate planning to ensure that individuals can pass on their wealth to future generations in a tax-efficient manner.

In conclusion, financial advisers are using a range of strategies to help clients mitigate potential IHT bills. These strategies include discretionary gift trusts, discounted gift trusts, taking advantage of business property relief, and using protection plans in trust. The growing demand for IHT planning is driven by factors such as the increasing value of assets and property, the use of pensions in estate planning, changes to IHT limits, and an aging population. By implementing these strategies, individuals can reduce their IHT liability and ensure that their wealth is passed on to future generations in a tax-efficient manner.