Frozen IHT thresholds will impact one in three adviser clients

One in three (31%) clients are likely to be affected by the frozen inheritance tax (IHT) thresholds, according to a survey among financial advisers from Octopus Investments.

This is almost double the number of clients (17%) that advisers say will be impacted by the freeze to the pensions lifetime allowance announced in this year’s Budget. Both have been frozen until April 2026.

While the majority of financial advisers (64%) suggested that affected clients are aware of the IHT freeze, only 11% said their clients fully understand how the change could impact them. A third (32%) believe affected clients are still completely unaware of the changes.

The research, conducted by Opinium among 208 financial advisers between 29 April and 4 May, also showed that when asked what changes their clients will need to make in light of the IHT freeze, the majority of advisers (72%) said they’d need to increase lifetime gifting to avoid the 40% tax.

This was followed by 37% of advisers who anticipate increased use of investments qualifying for Business Property Relief, while more than a third (36%) also expected clients to use lifetime trusts.

Octopus Investments head of strategic growth, Nick Bird, said that coupled with rising property prices, the freeze to IHT thresholds means “more estates than ever” are likely to face an IHT bill.

“The good news is there is plenty clients can do to make sure this is not the legacy they leave behind,” Bird commented.

“Increased lifetime gifting is looks likely to be the biggest change made to financial planning following the IHT freeze announcement. This is an effective and relatively simple way of reducing IHT exposure, provided clients do it within good time. The potential downside is that once the money has been gifted, it’s gone.

“Now that we’re all living longer, that balance between lifetime gifting and keeping enough to feel secure in our later years has become more difficult, and that’s why lots of advisers are also considering flexible planning solutions, such as BPR, as a more flexible tool to pass money through the generations.

“IHT is a complicated and often misunderstood tax and advisers have a real opportunity to add value to their clients, particularly where they might otherwise fail to recognise the need.”

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