Client trends June 2019: Investors get proactive about IHT and value for money

The UK’s notoriously complex IHT rules lay traps for the affluent and unwary, and we’re glad to see so many people seeking professional help this June – and also that they are getting proactive about professional, good value advice generally. Rogue pensions advisers continue to hit the headlines, highlighting the need to only work with the most reputable firms.

IHT worries hit over-60s

New HMRC figures revealing that a million over-60s are about to fall into the Inheritance Tax (IHT) trap give context to the rising number of enquiries we’re seeing from people in this age group anxious to avoid the “voluntary tax”.
The Revenue says that 9% of over-60s have assets at or just over the tax-free threshold – three times the level of the population at large – and 54% lack understanding of the IHT rules.

We are therefore really pleased that so many people are seeking professional advice through us, particularly given the risks for taking action with an imperfect understanding of the undoubtedly fiendishly complex rules.

There are many legitimate ways of mitigating IHT, like Business Property Relief related investments such Enterprise Investment Schemes and forestry, or one-off/regular gifts. But it is easy to get things wrong: HMRC has reportedly netted over £370m over the past three years through gifts gone awry.

IHT worries surface for those with £2m+ estates

A number of users have been looking for advice because they are concerned that they might be caught by the IHT trap that is the complex rules on the Residence Nil Rate Band.

Affluent individuals will remember breathing a sigh of relief when, back in 2007,the government promised to increase the Nil Rate Band from £325,000 to £1m, but the reality was actually something more complex: the Residence Nil Rate (RNRB).

Tax reliefs under the RNRB are subject to various stipulations around the inclusion of a main residence in the estate and lineal inheritance. Crucially, £2 million is the threshold for RNRB and where an estate is worth more, the allowance is withdrawn by £1 for every £2 over the limit, meaning that an estate worth over £2.35 million may not benefit from RNRB at all in 2021/22.

Experts are advising those with estates worth over £2m to consider taking assets out of their estates through lifetime gifts and other wealth structuring routes that may confer tax benefits, like a trust or Family Investment Company.

If you want to arrange your financial affairs to minimise IHT and keep as much money as possible in the family, expert advice is close at hand. The majority of the wealth managers we work with offer financial planning in-house and will be able to bring in any other professionals like lawyers needed too.

Rogue pension adviser warnings are hitting home

Users continue to see us as a source of trusted advice on pensions, with a raft of enquiries prompted by headline-grabbing warnings from the Financial Conduct Authority about rogue advisers and pension transfers.

The regulator announced that it banned 70% more advisers for pension misconduct in 2018 compared to 2017. As we warned in a recent article, it is estimated that up to half of people deciding to transfer a final salary pension are making a big mistake.

It is vital that savers take proper advice before making any major decisions on as important a store of wealth as their pension pot.

You must also make sure your adviser really has the expertise to assess the suitability of a transfer, including the risk, returns and charges of the proposed scheme and underlying investments.

From 2020, pension transfer specialists will need to have specific qualifications for providing advice on investments, but until then we recommend only taking advice from the kind of highly-qualified wealth managers we connect users to.

Top Tip

It’s natural to want to defer thinking about Inheritance Tax issues, which is why the majority of people don’t have a proper, up to date will in place. Yet the success of many IHT mitigation strategies absolutely depend on action being taken well in advance. Explore your options early and you can benefit from perfectly legitimate strategies that will otherwise be closed off.

Lee Goggin - Co-Founder

Lee Goggin

Co-Founder

Investors are getting granular on fees

Our piece on what to expect from wealth management fees seems to have inspired a good many existing clients to take a closer look at the costs and charges applied to their accounts.

Recent regulatory changes mean that investors should have greater transparency over fees and performance than ever, but you should never be afraid to ask for an explanation of anything unclear in any fee schedules or reports presented to you.

It is vital that to ensure you are getting the best value possible, so it is good practice to review your provider periodically to see how similar service packages compare on cost

It is vital that to ensure you are getting the best value possible, so it is good practice to review your provider periodically to see how similar service packages compare on cost (at least every three to five years). Even trimming 0.5% off your annual charges can make a huge difference to your financial position over the long term.

Net performance increasingly cited

It’s been really gratifying to hear users increasingly talking about net performance, often referencing our recent pieces key performance questions to ask your wealth manager and what to expect from wealth management fees.

As we’ve long preached, it is vital to adopt a net performance mindset focusing on gains once all costs and charges are taken into account. There are times when it may be worth paying a premium for superior investment performance or specialist services/expertise, but make sure that the price point you settle at is a conscious choice based on a thoroughgoing appreciation of similar providers’ rates.

As we’ve long preached, it is vital to adopt a netperformance mindset focusing on gains once all costs and charges are taken into account

Working with a firm that can provide even moderately better risk-adjusted returns could really amp up your wealth long term, as can reining in the costs of managing your money by even a small margin. It is often possible to do both by seeking a more competitive provider.

Do you share these concerns?

findaWEALTHMANAGER’s users are negotiating a broad range of financial challenges, but are generally united by their need to make their investments work as hard as they can, keep tax to a minimum and boost their family’s wealth in the long term.

Whether you are entirely new to wealth management, feel like you could be getting a better deal or just want to know what you could be doing to reach your goals more quickly, why not see which advisers would suit your needs?

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