By Dave Harris

When it comes to Budget announcements, we’ve never seen anything quite like it. The weeks of rumours and drip-fed hints of what’s to come have become par for the course, but for the contents of the speech to be widely available before the Chancellor has even stood up was, shall we say, more than highly unusual.

As a result, there was no great sense of surprise when the Chancellor finally confirmed that a host of tax thresholds, including for Inheritance Tax (IHT), would be frozen for a further three years, taking us up to April 2031.

However, the impact of this freeze may be significant for many older homeowners looking to keep their eventual IHT bill as low as possible.

The figures from the OBR, mistakenly released ahead of the Budget itself, highlight what a tremendous revenue-generator IHT has become for the Treasury. It suggests the levy is likely to bring in £9 billion in 2025-26, a jump of 4.5% on the previous year.

This analysis follows official data from the taxman itself, showing that between April and October this year, £5.2 billion of IHT was paid, not only a new record high but a jump of £200 million on the same period of the year before.

These ever-increasing receipts demonstrate the impact of greater numbers of families falling within the orbit of IHT. There is no escaping the fact IHT will become an even bigger concern for many across the country, and should therefore take a central role for advisers building a financial plan for their clients.

Reducing the value of the estate

The key factor with IHT is the eventual value of the estate. And as with the new Council Tax surcharge on higher-valued property, £2 million is a crucial milestone, since this is when the Residential Nil Rate Band starts to taper away. If clients want to prioritise keeping their IHT bill as low as possible, reducing the size of that estate is key.

That’s not made easy by the continued growth of house prices. The OBR predicts average house prices will move from an average value of £240k last year to just under £305k by the end of the decade, pushing more estates above the IHT threshold.

This is where lifetime mortgages can be such a powerful tool, for clients who want to take proactive measures now without having to sell their home and downsize.

Borrowing against their property reduces the value of the overall estate, but it also gives them control over how those released funds are used. Some will want to devote the money towards making their later years more comfortable, supplementing their pension savings, or perhaps making changes to their home to better meet their needs as they age.

Others will want to take this opportunity to pass funds to loved ones, to give them a financial helping hand. There is a wide range of gifting allowances for IHT, and there had been speculation that some could be removed in the Budget, or annual allowances replaced by a single lifetime gifting allowance.

While these changes didn’t materialise, the temptation for reform will remain for the Treasury, so it may make sense for clients to utilise them as much as possible while they remain in place.

Considering the whole picture

The reality is that when putting together a holistic financial plan for clients, property wealth simply cannot be overlooked. Whether the priority for the client is efficiently transferring their wealth to their children and grandchildren, or meeting their own wants and needs in the here and now, the housing equity they hold is crucial.

Advisers must take this opportunity to ensure they are considering the full picture when working with older clients, encompassing all of their assets, including the equity held in the property. In a very true sense, lifetime mortgages must not be overlooked.

Seizing the opportunity

When a client is looking to reduce their eventual tax bill, or efficiently pass wealth onto loved ones, a new mortgage might not jump out as the go-to option. But that’s where quality advisers can really stand out, educating their clients and highlighting a different path which can result in a more positive outcome.

Working alongside a specialist tax adviser means clients will be provided with an accurate insight into precisely what impact this strategy would have on their overall standing, allowing them to make the most informed decision possible.

As the Budget, and the figures behind it show, IHT is only going to become a bigger pressure point in the years ahead. It’s already a hated tax, and as more families find themselves liable, there will be a push for new ways to reduce liabilities. Advisers have a tremendous opportunity to help their clients take greater control over the legacy they leave behind — as well as the support they can provide in the present — by including lifetime mortgages in the product mix.