David Kaye, CEO of Puma Investments explains that with continuing economic uncertainty, and the rising cost of living, which is making people increasingly reluctant to give away their wealth in their lifetime.

Gifting is currently the most popular way of protecting assets against any potential inheritance tax (IHT) liabilities. But new research1 commissioned by Puma Investments with financial advisers, reveals that amid the continuing economic uncertainty, people are becoming increasingly cautious about permanently parting with their money through gifting.

37% of advisers think gifting will become more appealing as clients seek to help loved ones with immediate financial pressures, however more advisers (57%) expect gifting as a tool to mitigate IHT will become less appealing as clients worry about running down their resources. 

46% of advisers say that clients thinking about estate planning want to retain access to their wealth – gifting is, therefore, less appealing as 39% are concerned their clients’ financial circumstances will change and don’t know when they might need their money, and 27% consider clients to be reluctant to lose control of their assets whilst it remains unclear how long inflation might last and how high it might go.

Most people want to leave as much as possible to their loved ones on their death. But over the last few years, house prices have risen steeply, while the threshold at which IHT is payable hasn’t changed – this means the amount collected in IHT is on the rise, with HMRC revealing an 11% increase in IHT receipts in the last quarter².

There are several ways clients can mitigate against any IHT that might become due on their estate in the event of their death. Advisers say that setting up a trust is popular amongst 46% of clients, as it ensures assets are kept in the family and can be set up according to personal wishes; but it also comes with the same challenge as gifting in that clients lose ownership of those assets while they are alive. 

Business Relief will become more appealing in the current climate

Rather than deferring tax mitigation strategies amidst uncertainty, clients could consider Business Relief. While 37% of advisers say that Business Relief is already a popular estate planning tool amongst clients, 36% say it will become more appealing in the current climate. It provides greater access and control over assets compared to many other conventional solutions and offers faster inheritance tax exemption. Business Relief is a type of tax relief offered on certain companies listed on the AIM market and private trading businesses, and for clients that have owned these shares for at least two years on death, no IHT is due.

Financial planning can be complex in normal times, but recent market turmoil makes it particularly challenging. People are facing a huge amount of uncertainty whether its fears for the financial stability of some pension funds, rising living costs, or mortgages getting more expensive. 

All this uncertainty is feeding into the investment landscape, with people increasingly concerned about preserving their wealth. Prudent estate planning is an essential part of this, and even allowing for immediate economic concerns, for many estates IHT costs are continuing to rise. 

Greater access and control over assets 

Under these circumstances, increasing numbers of people are concerned about how they mitigate inheritance tax, whilst also balancing cost-of-living concerns. This is where Business Relief can be a useful estate planning tool because of the access and control it can give clients.

Advisers should be aware that it is a market that is constantly evolving, with AIM and non-AIM options available. Our Puma Heritage Estate Planning Service, for example, focuses on lending to projects that deliver regeneration, social infrastructure and place-making benefits; everything from student accommodation to care homes, whilst seeking to provide 100% relief from IHT after two years. Puma Heritage has consistently exceeded its target return of 3% per year and has now participated in over £1bn of loans. Unlike gifting, which also takes 7 years to be fully exempt from IHT, clients retain full control of their Business Relief qualifying investment should their circumstances change and IHT relief is granted after 2 years.

Sources:

¹ Puma Investments research with Opinium, October 2022

² HMRC IHT receipts, https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-tax-receipts-and-national-insurance-contributions-for-the-uk-new-monthly-bulletin