How the rise in Inheritance Tax will impact financial advisers

There is a key opportunity in the financial services industry as trillions of pounds are expected to be handed down from the rich to their children in the coming years. Independent financial advisers (IFAs) could more frequently be called upon for financial advice as heirs inherit large sums of money.

A recent Accountancy Age article revealed that the amount of Inheritance Tax collected by HMRC hit a record £5.3 billion, which is a 13% increase compared to the £4.7 billion collected in 2016/17. The increase in the value of Inheritance Tax collected suggests that there are more people inheriting large sums of money and therefore, more people in need of financial advice.  

Our recent ‘Inheritance Economy’ research, further highlights the intergenerational wealth transfer opportunity as it revealed that wealth transfers were estimated to have reached £66.3 billion in the UK in 2016. It is also estimated that over £5.5 trillion will pass between generations within the next thirty years.

The research paper, fittingly named ‘Wealth Transfer in the UK’, explores IFA attitudes to intergenerational wealth transfers and client retention. The findings are certainly interesting as one-third of IFAs (33%) reported sums of over £1 million passing from deceased clients to their beneficiaries.

However, the research revealed that many financial advisers are losing a significant number of funds under management as beneficiaries choose not to use their services. Notably, 26% of IFAs stated the reason for this is due to a lack of an existing relationship and 24% citing the beneficiaries’ desire for greater control over assets.

Surprisingly, a significant number of practices have no active business retention strategy. The findings showed that 18% of practices have no such strategy and this rises to 25% for the largest practices with book values in excess of £20 million.

Christopher Jones, Director at Kings Court Trust, commented on the story: “This anticipated phenomenon of increasing wealth transfers should be an advantage for financial advisers. However, there is considerable evidence to suggest that IFAs are not currently well-placed to manage this huge transition.”

He added, “As one of the UK’s leading estate administration providers, we have seen these increases in the amount of wealth passed from one generation to the next. We know the “inheritance economy” will significantly impact the financial services industry, their clients and their clients’ families, which is why we’re committed to supporting the wealth management sector in the most effective way possible.”

If you are interested in learning more about the intergenerational wealth transfer opportunity, download your free copy of the ‘Wealth Transfer in the UK’ research paper.