Q&A I already have a plan for inheritance tax - do I need a new one?

Andrew Sutherland, financial planner at Acumen Financial Planning | Ross Johnston/Newsline media

Q: I already have a plan for inheritance tax - do I need a new one?

A: The short answer is yes.

Inheritance tax planning is not a one-off.

It is immeasurably important to review and where necessary amend plans.

Legislation and rules change continuously, and more importantly so do individuals’ circumstances.

For example, James met with a financial adviser shortly after retirement and put in place a life assurance policy for him and his wife Sarah.

The adviser established what James’ and Sarah’s potential liability to inheritance tax would be on the second of them passing away.

The life assurance was set up to pay the amount of the liability directly to James and Sarah’s children covering the cost of the inheritance tax when they pass away to let their estate pass to the next generation.

James and Sarah have been paying monthly premiums for the past 10 years or so making sure that their liability will be covered assuming that tax allowances would increase with inflation over time.

They have noticed that the monthly premiums have started to get more expensive, and they are wondering whether the assurance still makes sense, or if they should make a change.

On reviewing their position with a financial planner, James and Sarah establish that their potential liability to inheritance tax has increased significantly.

Rachel Reeves’ Autumn Budget set out that until at least 2030 the inheritance tax threshold will remain at the same level as it has been since 2009.

James and his wife will also benefit from the Residence nil rate band brought in in 2017 which would appear to account for increases to allowances over time.

However, the same Autumn Budget announced that pensions will now become assessable for inheritance tax for the first time from April 2027. Previously, they had been sheltered entirely.

The inclusion of James’ and Sarah’s pensions in their calculations will bring the overall value of their estate above £2 million. Their residence nil rate band is therefore eroded away, further increasing their exposure to inheritance tax.

All this change – some of which is rules and legislation, and some of which is to do with James and Sarah’s position over time – means that they will benefit from reviewing their position with a financial planner.

With ongoing reviews, James and Sarah – and many others in a similar position – can then establish what are appropriate actions for them to take to ensure their estate can pass on to the next generation.

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