Only 7% of advisers understand when to correctly apply the transferable nil rate band (NRB) after the death of a spouse or civil partner, according to Canada Life.
According to the insurer’s Hot Topics research, two-thirds of advisers believe that the transferable NRB can be used for lifetime gifting, with a further 27% unsure.
NRB – also known as the inheritance tax (IHT) threshold – is the amount up to which an estate has no IHT to pay.
Neil Jones, market development manager, Canada Life, said: “Maximising the use of any available nil rate band is one of the key ways to move money to future generations and away from the taxman. It forms the central pillar for many successful financial plans.
“By its very nature, it encourages advisers to be there for their clients over a period of years, even decades and be ready to help subsequent generations. It fosters the kind of relationship that advisers should want to have with their clients.”
Financial risk
There seems to be confusion about UK government rules surrounding NRB, which the insurer believes is putting advisers and clients at “financial risk”.
Canada Life said under the IHT rules, “a client using the transferable NRB for lifetime gifting could incur an immediate inheritance tax charge of up to £65,000 ($83,350, €73,450)”, opening up advisers to a “serious liability issue”.
The £65,000 charge is calculated as £325,000 (the nil rate band threshold for lifetime gifting) x 20% (the IHT lifetime charge if a client goes over the accumulated allowance).
The research also showed that when it comes to re-using the lifetime gifting NRB threshold of £325,000 every seven years, more than one in 10 (12%) were either unsure or not aware how cumulative gifting operates.
With more estates being subject to IHT each year it is important that people seek advice on how to reduce the amount payable and for advisers to have a range of solutions available to them.
Jones added: “The inheritance tax rules can be complicated and there are some common misconceptions which, if advisers aren’t careful, could get them in hot water.
“The reality is that the unused part of the NRB can only be transferred to the estate of the surviving spouse or civil partner when the survivor passes away – it cannot be used by the survivor for their lifetime gifting.
“It’s little wonder that this is a difficult area for advisers – the NRB and the residence nil rate band (RNRB) rules are, at times, deeply confusing.”
Government role
Canada Life told International Adviser that the UK government has a key role to play in demystifying the NRB, echoing the findings of the Office of Tax Simplification, which recently pointed out that there was not enough guidance or calculations on how IHT works.
It believes the government should work on new, easier ways to achieve what the RNRB sets out to do.
The research, conducted in August 2018, surveyed 227 professional advisers in the UK.
