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Albermarle said:
I have the impression that even 'well off' households ( the type who regularly post on this forum for example) who will probably be liable for significant amounts of IHT, are still best to avoid trusts if at all possible. In the end it is probably simpler to reduce wealth by giving it away, or spending it and then just pay any tax that is due.poseidon1 said:As someone who administered and advised on trusts for the very wealthy, pretty much my entire working life, discretionary trusts have little or no role to play in the affairs of the vast majority of the ordinary general public.
Qualifying IPDI trusts can make sense in some family situations but such trusts never save on IHT. At best they preserve the blanket exemption for testamentary gifts between spouses, where for what ever reason, outright gifts to the surviving spouse are not suitable ( blended families as an example).
From what I have observed on MSE forums the majority of people with no IHT exposure at all, are seduced into setting up wholly unsuitable trusts primarily to avoid potential care home fees, with the surviving beneficiaries having to deal with the fallout from their parent's ill considered decision.
You mention the 'very wealthy' and ' the general public ' in your post, but I think even the 'Mass affluent' are best to avoid them even if they are worth a Couple of Million or so?
In my arena very wealthy started at £5 million+ ( at today's value) all the way up to 100s of million and a couple of ( non dom) billionaires.
I would assess the mass affluent in the 2 to 3 million pound range with a large proportion of that wealth in the family home, so ordinarily outside the parameters of firms like my own unless they had wealthier relatives we already serviced.
However, the future taxation of DC pension pots, will haul some of the mass affluent into the kind of IHT territory which could benefit from the services of upper tier accountancy /law firms like my own but such individuals will have had no prior experience of accessing such services or how to distinguish the good from the ordinary. There is also the question of the professional fees at that level, that many would find distinctly off putting.
I suspect the mass affluent, potentially very badly hit by the approaching IHT regime on DC pensions in future, may be drawn to investment bond based packaged IHT trust mitigation schemes which IFAs will be dusting down from the shelf to offer to a new generation of clients anxious to keep more of their wealth within the family.
A much smaller cohort may look to bespoke planning strategies (perhaps involving discretionary trusts) especially if there is a family business in the mix or vulnerable beneficiaries unable/incapable of managing their own affairs .3 -
Interesting set of posts since I posted on the 21st January and some useful information so thanks for posting.
I may well go along to this seminar but will be cautious and "for information" only. Trusts for sure seem an area to be very careful and avoid unless absolutely needed. For the typical person they are not worth it or just not required. There is the potential issue of trying to retain value of your house for children, in the future event you need to go into a care home, but I think people need to put this into proportion on the chances of that actually happening. A 2021 ONS census ( ) gave a figure of 10.8% of people over 85 in residential care homes and that was a reduction from 2011. So for the vast majority of people, this is not a consideration. Rules are also very tight on trusts intended to avoid care home costs and liable to be subject to the depravation of assets rule/claim, if any evidence it was done to avoid such costs at a future date.
But in terms of IHT in the first place, policy of gifting early I agree with and I personally intend to do that, plus leaving the house to a child at least allows £500K for the IHT threshold (plus routes up to £2M for couples), so they will have to put up with just getting that! In the mean time for retirement, it will be a case for me to spend (where cash assets are available to do so) and enjoy anything above £500K!
One thing I think will create a good deal of complaining in 2027, as poseidon1 has stated, is the introduction of pensions into the IHT count and those with DC pensions will now have to count what value is retained in their pension on top of what they have now. Obvious thing to do is make sure the rate of drawdown uses up your pension eventually, you just have to take a view when you will not be here any longer or too old to spend the money anyway! If today’s assets were not already kicking me over the IHT threshold, my DC pension will do, so strategy is to spend. But also waiting to see if a change in Government occurs after the next election the policy on this will be reverses or modified, so maybe wait and see what happens first before deciding.
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The inclusion of DC pension balances in the estate for IHT purposes seems eminently sensible to me; definitely not popular, but still sensible. Of course the obvious way to avoid IHT on DC balances is to use them to buy an annuity. But that comes with all the usual pros and cons as well.
And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
OK fair enough we have different views then, as I take the view pensions are different to "cash assets" for inheritance. Maybe if inherited to spend as cash as you see fit then yes a remaining DC pension pot (or elements of DB e.g. lump sum given upon death) following death can be seen as more of a "cash asset" acquired by beneficiaries so comes under IHT rules. But a key consideration I would like to see is that if the DC pension pot is allocated to a beneficiary is retained as a pension for the beneficiary themselves (e.g. children) to help them build up their own pension pot for future retirement so not acquired as cash, then that should be free of any IHT. DC pensions are hard enough to build up anyway and subject to market peaks and troughs, bad investment decisions, poor performing funds, etc, so IMHO you should be able to help beneficiaries in their future pension needs without a penalty. So that may be by increasing the IHT threshold in the same manner if you pass your house to a child, or just excluded from IHT maybe. That's my view at least but right now the the Finance (2) bill introducing this change in April 2027 has taken policy from one extreme to another IMHO and there should be a route for people to pass on what is left of their pensions to others to help with their pensions.
With 2027 policy unchanged, then as well as buying an annuity, the other route to reduce or eliminate IHT risk on unused pension upon death is to make sure you have a drawdown rate to use your money up. I keep seeing recommendations for the book "Die with Zero" by Bill Perkins (I don't have it) by people actively managing their DC pension investments as their future approach. It is certainly one way to resolve IHT risk on pensions, just go and have some fun and adventures and spend the money. Obviously that doesn't cover unexpected death events!
Anyway back to the main subject here, I will be attending this seminar next Tuesday to see how it goes and what is said. Personally I think I have everything in hand for what I need, so for me it's really a double check to see if there is anything I have missed. I'll post after the event to give some further feedback, especially if any follow up contacts are made and how "pushy" they were.
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It's an interesting topic. I believe that DC pensions avoided the IHT net because everything was previously geared to DB pensions and annuities that had no cash value after death. The Government can carve out whatever exemptions they want, but the logic of including any DC account balances in the estate for IHT purposes seems quite straight forward to me. However, the tax free IHT allowances are ridiculously small given the increase in house prices and stock market values over that last 30 years and I'd like to see them greatly increased.
And so we beat on, boats against the current, borne back ceaselessly into the past.3 -
As long as the government keeps trotting out that line about only a tiny percentage of estates paying IHT…. not a rats chance in hell of a threshold increase.
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It is an interesting concept about passing on pensions to children, but under current legislation beneficiary pensions can be withdrawn at any age, although there may be a minimum age, like 18, I am not sure.
However in the large majority of cases, the 'child' will be already an adult, and able to withdraw all the pension when they want.
So it still gets around the fundamental problem, as the Treasury sees it, of unused DC pension pots being used as an IHT avoidance vehicle. Financial advisors and many info outlets actively encourage people to spend all other assets first, and the pension last. The fact that part of that unused pension pot has been funded by Govt tax relief, probably made the decision even easier for the Govt. as they can easily say pensions are supported by tax relief so people can build up a nice nest egg to fund their retirement. Not so they can be used as a way by relatively well off people, of passing a legacy down the line tax free.
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The fact that part of that unused pension pot has been funded by Govt tax relief, probably made the decision even easier for the Govt. as they can easily say pensions are supported by tax relief so people can build up a nice nest egg to fund their retirement. Not so they can be used as a way by relatively well off people, of passing a legacy down the line tax free.
Although I suspect the "relatively well off" are already looking for ways around that - and unfortunately every new restriction encourages scammers to try to find new ways to con the less well off.
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The "really well off" can either leave the UK and divest themselves of UK assets or use various trusts/investment bond structures to avoid IHT…and probably more esoteric schemes. As already stated trusts come with their own taxes and overhead and so might not be that useful for the "relatively well off". Spending or gifting from excess income and giving to charities are the most obvious ways to mitigate IHT. There is also investing in AIM funds, (from April will get 20% IHT) but that comes with other costs and risks and just feels like a space where "buyer beware" should be upmost in the mind.
And so we beat on, boats against the current, borne back ceaselessly into the past.1
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