IHT planning queries rise as families look for lesser-known strategies – Rathbones

Rathbones has reported a sharp rise in client questions about inheritance tax (IHT) planning, with many looking at lesser-known ways to reduce their liability ahead of possible changes in the Autumn Budget.

Simon Bashorun, head of advice at Rathbones Private Office, said: “The freeze in IHT nil-rate bands has put families on a treadmill of rising inheritance tax liability, even before any further changes are made. 

“While speculation around the Budget is understandable, making snap decisions can derail plans and prove costly. 

“Regardless of what the future may bring, effective IHT planning starts with knowing what you can afford to give away.”

Bashorun added: “That requires a robust lifetime cashflow plan to assess your capacity to part with capital or income. 

“From there, using current allowances and reliefs makes sense. 

“Tailored financial advice is crucial to ensure the best strategy for individual circumstances.” 

Clients have been reviewing their estate plans after last year’s changes brought pensions into IHT calculations from April 2027, along with reforms to agricultural property relief and business relief. 

Speculation about the Budget has caused more people to seek advice.

A recent Freedom of Information request by Rathbones found almost one in 10 estates liable for IHT paid over £500,000 in the most recent year available. 

If trends from the three years to April 2022 continue, Rathbones estimates 3,524 estates will pay more than £500,000 in IHT by the end of 2025-26, based on an average annual increase of 8.74%.

Bashorun added: “We are seeing rising interest in how a deed of variation can be used to redirect an expected inheritance. 

“The driver is often to ensure assets are passed on in a way that aligns with the family’s long term financial goals including potential IHT efficiencies – for example, by skipping a generation or placing the inheritance into a trust. 

“This not only provides protection from IHT and greater control over the assets but can also give flexibility for the original beneficiary to access the funds if required.” 

On the Alternative Investment Market (AIM) shares, Bashorun said performance has dropped sharply since 2021, which has made investors more cautious. 

He noted that this highlights how volatile smaller company investments can be, and added that tax benefits should not be the main reason for choosing these shares. 

He pointed out that IHT savings from AIM investments are set to be halved from 2026, which is making the market quieter. 

However, for clients who are happy to take on more risk, AIM portfolios can still provide some IHT savings and may appeal in the current climate.

Additionally, Bashorun said that, due to recent changes to AIM rules, some investors might look at other business property relief (BPR) options, especially those worth less than £1m. 

He noted that there is still uncertainty about how moves from AIM to other BPR investments will be treated, and whether the Chancellor might change the rules again. 

He suggested that, for those who can wait, it may be wise to hold off for now. 

He also reminded investors that AIM shares and BPR investments are high risk and may not suit everyone, and recommended seeking professional advice before making any decisions.

On gifts out of surplus income, Bashorun said this exemption does not require the seven-year rule, but is still not widely used because many people do not know about it. 

He added that it has often been hard to prove enough surplus income, especially for those who rely on capital during retirement.

With pensions falling inside the estate from April 2027, Bashorun said attitudes are shifting. 

Pension withdrawals can count as income, and while this may trigger income tax, paying 40–45% now can be preferable to a certain IHT charge later, especially if beneficiaries are higher-rate taxpayers themselves. 

He also said substantial surplus income is being used to fund discretionary trusts over several years, which can avoid the entry charges that usually apply to large settlements, while moving wealth into a structure that offers both protection and control for the family.

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