Will Andy Burnham scrap Inheritance Tax in favour of a lifetime wealth tax? And what does that mean for advisers?

Inheritance Tax has been in the news a lot more than usual recently, and that’s mostly down to our newest Prime Minister Andy Burnham.

Burnham, a long-standing member of the Labour party, has previously argued that Britain taxes earned income too heavily and accumulated wealth too lightly. It’s no surprise then, that a wave of speculation has appeared ahead of his cabinet’s first budget, which has been announced for the 28th October.

A big part of this is what the party is going to do regarding Inheritance Tax.

Previously, Burnham has advocated for replacing the existing Inheritance Tax (IHT) system with a 10% levy on estates at death to help fund social care. At the same time, wider debate around taxing wealth during people’s lifetimes has also gathered pace.

Whether any of that ultimately makes it into Chancellor John Healey’s Budget on 28 October remains to be seen.

But if I were an adviser, I wouldn’t wait until Budget day to start thinking about it.

The right response isn’t to try to predict exactly what the Government will do, it’s to identify which clients could be exposed to change, start conversations with them now and understand where future liquidity problems could arise.

First, don’t assume scrapping IHT means less tax

This is probably the most important point to communicate to clients.

“Scrapping Inheritance Tax” sounds, on the face of it, like good news for wealthy clients. But it depends entirely on what replaces it.

Under the current system, the standard nil-rate band is £325,000 with qualifying estates potentially benefitting from a further £175,000 residence nil-rate band. The IHT rate above these available thresholds is 40%.

Burnham’s historic proposal is very different: a much lower 10% rate, but potentially applied far more broadly. It is also unclear whether any existing thresholds would remain.

Whilst the headline does sound appealing, the reality is that under these changes, far more people could find themselves liable to Inheritance Tax.

Currently, the truth is that we don’t know whether that proposal will be adopted, amended or abandoned. No one does.

Equally, Burnham’s argument that wealth should carry more of the tax burden has created speculation about whether changes will be applied to Inheritance Tax or elsewhere, with property and capital gains also in the potential firing line.

For advisers, I’d therefore be wary of allowing clients to think about this simply as “Will IHT go up or down?”

What I’d be looking at instead is which clients could suddenly find themselves caught out by a very different tax regime.

Start identifying the clients who could be affected

If my clients were in this situation, I’d be reviewing books now, rather than waiting until October.

That doesn’t mean changing financial plans based on speculation. It means looking for situations where a change in the rules could materially alter the client’s position.

The clients I’d be looking at particularly closely are the ones who appear wealthy on paper but don’t necessarily have much cash available. We see this surprisingly often at Provira, someone can leave behind a substantial estate, but if most of that value is tied up in a house, it doesn’t necessarily help an executor who needs to find cash for an IHT bill.

Don’t rush clients into decisions, but create options

I suspect plenty of advisers are already getting questions from clients who have seen the headlines and want to know whether they should be doing something now.

My view would be to resist making decisions purely in response to political speculation. Instead, help clients understand their options.

That might mean modelling their position under different scenarios, reviewing estate structures, checking how easily assets could be sold and making sure wills still achieve what the client wants.

There may be nothing to change before October. But if the Budget does bring reform, you want to know immediately which clients you need to pick up the phone to.

Make liquidity part of the inheritance conversation

This is where I think advisers need to pay the most attention.

Tax planning tends to focus on the size of the taxes a person might incur, but advisers should also be asking how those taxes would actually be paid.

Under the current system, HMRC says IHT must be paid by the end of the sixth month after death and that a payment towards the tax will have to take place before executors can obtain probate.

That can create an obvious problem. If a big proportion of the estate consists of property or other illiquid assets, executors can find themselves needing money before they have the authority or ability to sell those assets.

That problem doesn’t necessarily disappear if IHT is replaced.

In fact, if a future estate levy is applied to a broader range of estates, more families could find themselves needing to think about estate liquidity.

That is why I’d encourage advisers to add one question to client conversations: If this estate faced a tax bill tomorrow, where would the cash come from?

If the answer isn’t immediately obvious, it’s worth exploring the options before the family is dealing with it during probate.

At Provira, our Estate Advance can provide executors with access to up to 50% of an estate’s value with cash that can be used towards IHT and other estate liabilities. 

If you have clients where future estate liquidity is already a concern, speak to us. We’d be happy to explain where an Estate Advance could potentially help.

Burnham’s budget: an opportunity to start conversations

Ultimately, we don’t yet know what the 28 October Budget will bring.

IHT could stay as it is, or we could see huge reforms. Importantly, advisers don’t need to predict the answer, they just need to be ready to do what they do best: advise.

At Provira, we work with IFAs, finance brokers, solicitors and specialist accountants across the UK, helping their clients access estate and inheritance funds during probate.

We’re also here to act as a sounding board. If you’re looking at a client’s estate and can see where the tax bill is coming from, but aren’t sure where the cash is going to come from, that’s exactly the sort of conversation we’re happy to have. Equally, if you simply have a case you’re unsure about, book a call with our team and talk us through it.

About Provira

Provira is the UK’s most established provider of inheritance and estate advances, trusted by hundreds of financial advisers and brokers. We’ve supported thousands of families, advancing £20,000 to over £1 million to help cover IHT, legal fees and personal needs – quickly, securely, and without personal guarantees or property charges.

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