Potential IHT changes top tax fears among advisers and clients ahead of Budget

Potential changes to inheritance tax (IHT) are the greatest tax-related concern for advisers and their clients in the build up to the Budget on 28 October, according to AJ Bell.

It found that 57 per cent of advisers saw further cuts to IHT breaks and allowances and their clients’ biggest fear ahead of the Budget.

However, this was not the only potential tax-related change worrying clients, with 47 per cent of advisers citing a potential cut to the maximum pension tax-free cash lump sum as a concern.

The introduction of a wealth tax (39 per cent), increases to income tax or national insurance contributions (36 per cent), and a reduction to pension tax relief (27 per cent) rounded off the top five concerns.

Looking at issued clients are facing in the current environment, 87 per cent of advisers said frozen IHT thresholds and the inclusion of unused pensions in IHT from April were the biggest pain points.

“Advisers have been straining to hold back a surging tax tide in recent years,” commented AJ Bell head of public policy, Rachel Vahey.

“Under successive governments, clients have been clobbered by cuts to tax-free allowances, hikes to tax rates and newfangled tax changes entrenching more complexity into an already creaking system.

“Unsurprisingly, further action on IHT is currently the biggest concern for advisers and clients ahead of the Budget.

“Since announcing at the 2024 Autumn Budget that unused pension funds would be included in IHT calculations, the government has drip-fed details of how the new process will work in practice.”

Vahey highlighted that, amid all the changes, financial advice had never been more important.
She added that it was vital that advisers help clients to filter out the noise and avoid knee-jerk reactions based purely on speculation.

“It may sometimes be the case that clients fear the tax changes that in practice may not affect them as badly as they think, if at all,” Vahey said.

“Advisers will be instrumental in identifying the measures that will apply to each client, whilst supporting them to make good decisions in line with their long-term plans and objectives.”

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