Changes in government can have a great impact on personal finance, both for consumers who are affected and those who work in the financial services sector.
One area that could see upheavals in this year’s election campaign is inheritance tax. It was mooted the chancellor might make alterations to it in the Autumn Statement but he decided not to act, instead unveiling changes to stamp duty.
However, its omission from December’s statement leaves the door open to changes in inheritance tax being part of the policy fight in the months ahead. In anticipation of this, the YouGov Financial Services research team investigated public attitudes to raising the inheritance tax threshold from its current £325,000 level to the £1 million figure floated by David Cameron last year.
We found that almost two-thirds (65%) of people think raising the inheritance threshold from £325,000 to £1 million is a positive move, with over half (55%) believing that increasing the threshold would be easy for the government to do because “very few people will be affected”. But is this belief correct?
Although we found that just 2% of British adults have received an inheritance of more than £325,000 in the past, one in ten (10%) expect to receive a windfall of this size in the future. In London this figure is even higher, at one in six (16%). There could be various reasons for this but the most compelling explanation is that increasing property prices have nudged more and more people in to the inheritance tax bracket.
Among the 10% of the population that anticipates receiving more than £325,000, the vast majority (9%) would benefit from David Cameron’s mooted change in inheritance tax as they think they will receive under £1 million. Perhaps unsurprisingly, among this particular group over four in five (82%) believe that increasing the threshold is a good idea and just 11% think it is a poor one.
Support for the increase in inheritance tax is particularly strong among older people. More than seven in ten (72%) over-60s agree that changing the threshold is good compared to just over half (53%) of 18-24 year-olds. There are a couple of possible explanations for this. The first is that older people are more likely to be looking into passing on wealth to loved ones. The second is that, as the average age of the population rises, more and more of this age group are themselves coming into inheritances. Either way, any change to Inheritance Tax would be a more pressing issue to this age group than any other.
Whether changes in the tax boundaries lead to an increase in the numbers seeking such consultation is an intriguing issue for the sector. Increased thresholds would create expanded opportunities for independent financial advisors offering specialist consultation regarding estate management, investments of assets or leaving an inheritance. But whether they could capitalise on this (and whether people would seek out advice) is another matter.
Despite a notable proportion of people expecting to receive a benefaction between £325,000 and £1 million in the future relatively few have sought financial advice. YouGov’s research shows that while more four in ten of them (43%) would go to an IFA about an inheritance, the same proportion (43%) say they would not. It is, of course, possible that these figures would change were changes to the tax implemented.
It is unclear yet whether inheritance tax will be an issue in this year’s election. However, the fact that the Prime Minister floated the idea last autumn makes it a possibility. Our research makes it clear that increasing the inheritance tax threshold has popular headline appeal. While some of this is rooted in self-interest, another take on it is simply the hard-headed reality that £325,000 is not what it used to be, something that will only intensify as time goes on.
Although only two per cent of the public have previously received an inheritance over £325,000, this figure could quadruple as increasing house prices and inflation kick in. Were the thresholds to move, the financial services sector as a whole – and IFAs in particular – could be in for a windfall of their own in the coming years.
YouGov’s financial services research team provides market research into insurance, banking, bank accounts, wealth management, asset management, savings, investments, pensions, annuities, and mortgages, as well as providing bespoke research solutions to financial services providers.
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