Older investors holding onto savings in Peps and Isas could lose 40% of their savings through Inheritance Tax (IHT), claims the Way Group.
The company warns thousands of families could be hit with an unexpected IHT charge as many elderly parents hold on to these types of “tax-free” investment plans, without taking the necessary steps to protect their estates when they die.
It estimates around 165,000 investors aged over 70 are holding “tax-sheltered” portfolios worth more than £100,000, which based on current mortality rates means around £0.5bn of the total yearly IHT tax revenue of £3bn, comes from IHT tax charges on Peps and Isas.
At the moment Way Group believes there are around 300,000 investors who hold a large amount of equities-based tax free investments in their portfolios, with no plans for their portfolios to be transferred into an alternative investment scheme which will protect their savings when they die.
Paul Wilcox, chairman of the Way Group, says out of these investors over half, around 165,000, are aged over 70 and points out these are the ones which are at the greatest risk of losing out on the tax free benefits of their savings strategy.
He claims investors have been “seduced by the government” into building up their investments within a ‘tax-free umbrella’, but warns many do not realise they will suffer a “punitive IHT sting at death” when they and their families could lose 40% of their savings.
Wilcox adds: “It is worrying so many investors at this time of their lives do not gift their portfolios into a flexible trust for their beneficiaries. Common sense planning like this means the clients retain access to their funds and will in all probability avoid IHT.”
And he points out while younger investors will want to take advantage of the benefits of Isas, to build up tax free funds for planned events such as school fees, Wilcox points out it does not make sense for older investors who could easily fall into the IHT trap.
“Over recent years the government has made it increasingly difficult for investors to mitigate IHT on their homes,” says Wilcox.
But he adds: “By stealth tactics it is also misleading investors into thinking there are substantial tax benefits in retaining Pep and Isa portfolios, while simply ensuring they can continue to collect large amounts of IHT from the unwitting and unprepared elderly investor.”
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