Discounted gift trusts (DGT) business levels will remain flat or fall over the next year due to adviser dissatisfaction with the products on offer, a survey by Octopus Investments reveals.
The investment firm's poll - which received responses from 270 advisers - found more than two- thirds of advisers expected DGT business levels to to remain flat or fall over the next year. This is despite the UK's rapidly ageing population and the rising number of people with estates valued above the nil rate band of £325,000, the current inheritance tax (IHT) threshold.
Octopus said the shift away from DGTs could be a result of dissatisfaction with IHT vehicles.
Managing director Paul Latham said: "Our survey revealed a widespread perception within the adviser community that, although DGTs have their uses, they come with too many drawbacks."
Advisers polled felt DGTs were too complicated to set up and inflexible with client funds - a view worsened by nervousness around the UK's current economic conditions.
In addition, the survey revealed widespread inertia among financial advisers and product providers when it comes to addressing IHT liabilities, something that could be addressed by more competition and innovation from product providers. It also found the majority (88%) of advisers responding to the survey had not changed their top three DGT providers in the last 12 months.
Latham added: "There is still more work to be done by both product providers and advisers alike if we are going to succeed in encouraging more individuals to address their IHT liabilities. There needs to be some fresh thinking across the market to help initiate a change of approach to IHT planning."
Jeremy Pearson, technical support manager at Canada Life said: "IFAs who use our bonds tend to use the more flexible version we have, which is called a Wealth Preservation Trust. Clients like to have the option to change their mind about the income if they want to. They wouldn't have a discount so this would perhaps be more appropriate to the younger rather than the older client. But if you've got a client in their 80s and they are in good health, a DGT could be the best thing to do.
"With most trust arrangements, if you make a gift, you have to live seven years before it's not counted as part of your estate when you die. With DGTs, there are various restrictions with them, but if you take those restrictions on board, you would get a discount on the amount of the gift. [You would get] IHT savings straight away without having to wait for seven years, so for people who are older and living seven years isn't so likely, that would be more appropriate to them.
"[DGTs] have great advantages in terms of the potential IHT saving but there are various questions IFAs have to ask before they would recommend the DGT - is the client in good health and do they need the income they have to take?"
Lowest level since 2016
Subset of fintech
Just one-fifth not in favour
Armed forces charity
PI providers adding constraints to cover