Beware Newton's Third Law of Motion
Trouble is, those 95 individual reliefs bring their own set of issues. Firstly, chances are not everyone will be able to name more than a dozen or so of the reliefs, let alone all 95. Even if they could, the next challenge is to understand fully what the reliefs mean, who they are most relevant to, when they can be utilised and what happens to their effectiveness when combined with other IHT mitigation measures. In line with Newton's Third Law of Motion, where equal and opposite forces result in a net force of zero, two separate actions taken can cancel each other out.
A question of trust
And then there are trusts. While the majority of these fall under one of two types – bare or discretionary – there are many variations of trusts to cater for a settlor’s objectives (the settlor being the individual wishing to mitigate a possible future IHT liability so that more of his or her wealth can be transferred to loved ones). Assuming trusts are deemed to be suitable for the client, a one size fits all trust solution does not exist. Tailored strategies are required.
Financial advisers have a key role to play here. The various reliefs, trusts, and forms of giving are all highly effective tools for IHT planning, but only if clients or executors of estates are aware of them. If they are not, reliefs won’t be claimed, optimal strategies won’t be adopted and potential IHT liabilities won’t be minimised. Financial advisers have the knowledge, experience and expertise to help organise estates effectively. As well as knowing which reliefs are available or which trusts would best match a specific objective, advisers will be able to explain the control and tax implications of any actions taken.
As with all strategies, the process starts by gaining an in-depth understanding of the wishes of the client. Once this is in place, a suitable and effective plan can be designed and then executed. IHT planning, however, does not end with the roll out of a bespoke solution.
Regular reviewing is required to ensure IHT strategies remain fit for purpose in a constantly changing tax environment. IHT is a major earner for the government. Together with the Great Wealth Transfer that is currently underway, whereby Baby Boomers are passing on their wealth to the next generation, further changes to the IHT landscape can be expected, changes that would, more likely than not, make the world of IHT even more complex than it is today.
