Expert: David Kaye, Founder & Group Chief Executive Officer, Puma Capital Group Facilitator: Brian Hill, Melo
Headlines:
- Significant changes to inheritance tax and pension rules require financial advisers to adopt new strategies, emphasising intergenerational wealth transfer and business relief investments.
- Advisers face increasing complexity and demand for upskilling, alongside challenges in revenue and client engagement.
- Leveraging technology, including AI and advanced planning tools, could help advisers manage the heightened complexity and ensure compliance.
Discussion points:
Key Budget Changes
The recent UK budget introduced several key changes impacting inheritance tax planning and pensions. A new £1 million lifetime allowance for private companies now qualifies for 100% inheritance tax (IHT) relief, with 50% IHT relief (20% tax) applying to amounts exceeding £1 million. Additionally, AIM shares now qualify for a flat 20% IHT relief with no threshold. Regarding pensions, unused pension assets are now subject to IHT, potentially resulting in double taxation, with up to 67% tax on inherited pensions.
Implications for Financial Advisers and Clients
In response to these changes, there has been a strategic shift, with a greater focus on business relief qualifying investments such as private trading companies and AIM alternatives. The use of Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS) for tax relief is expected to increase. Furthermore, clients may adopt drawdown strategies and gifting approaches to mitigate new IHT burdens. There is also an increased need for financial advisers to maintain regular, proactive communication with clients, particularly regarding intergenerational wealth transfer and planning for next-generation beneficiaries. This will require an ongoing reassessment of fee structures as advisers deal with the potential decline in assets under management (AUM) due to client withdrawals or asset gifting.
Challenges and Industry Adaptation
The changes to inheritance tax and pensions necessitate upskilling in areas such as tax, estate planning, and regulatory compliance. Financial advisers may need additional qualifications or specialisations to navigate the evolving landscape. Additionally, there is a growing emphasis on the adoption of technology, particularly artificial intelligence (AI) and algorithms, to help manage complex scenarios and improve client recommendations. Firms must invest in technology to ensure compliance and to address evolving client needs. The increased complexity of client situations also means advisers face higher workloads and a need for scalable solutions.
Future Trends and Considerations
As the regulatory landscape continues to evolve, there will be a sustained focus on consumer duty and professional obligations, which will shape the future of financial advice. The broader impacts of pension reforms on retirement and estate planning must also be monitored. The industry is likely to see the development of new financial products to address gaps created by the budget changes, along with a greater emphasis on aligning planning tools with client-specific needs.
Key takeaways:
- Advisers should review and update client strategies to incorporate new business relief and pension rules into financial plans.
- Proactively engage clients in discussions about intergenerational wealth transfer and tax-efficient options.
- Firms should explore AI-based tools to simplify complex tax planning scenarios.
- It’s essential to invest in training programmes to upskill advisers in estate and tax planning.
- Industry collaboration will be key in developing educational materials to help advisers and clients navigate the regulatory changes.
- The development of innovative products will be critical to meet the emerging needs of clients in light of the budget changes.
