Family faces sizeable inherited tax bill due to outdated tax advisement worth £20,000.
A Chilling Tale of Outdated Inheritance Tax Advice
Everyone thinks they've got their ducks in a row when it comes to estate planning, but as one family learned the hard way, outdated advice can lead to a hefty £20,000 inheritance tax bill.
Meet the Smiths. They thought they had everything sorted when Jane Smith, their mother, passed away in 2021. They believed they wouldn't have to shell out a dime in inheritance tax thanks to her diligent planning and a former accountant's somewhat dubious advice.
Jane was meticulous with her paperwork, selling her second home years before her death to avoid having more than one property and using the proceeds to makeup gifts for family and friends. She even arranged for her family to avoid paying an accountant or solicitor to file for probate after her death.
But here's where things went awry. Jane's estate was valued based on outdated advice from a retired accountant. As property values surged and IHT thresholds remained frozen, that old advice was no longer relevant—and didn't take into account the increase in Jane's property's value by about £130,000 since she first wrote her will a decade prior. That put her estate over the threshold for paying inheritance tax.
Michael Henry, principal associate at law firm Nockolds, warned against relying on non-regulated will writers or those who have left the profession. "The best way to prevent potential issues and ensure your estate is distributed as you wish, and without unforeseen tax implications, is to make a will after seeking professional advice and keeping it updated," he cautioned.
The Perils of Stale IHT Advice
People seeking tax advice often assume it's as regulated as other professions like financial services. However, in contrast to most developed countries and other sectors, the UK does not regulate the tax advice market. This means almost anyone can provide tax advice with little to no oversight.
While most tax practitioners are competent and adhere to professional standards, some do not meet those standards, and they can offer subpar advice leading to costly mistakes—as the Smith family discovered. To make matters worse, former or retired accountants may not be up-to-date with the latest tax regulations and best practices.
Navigating the IHT Minefield
To find a trustworthy IHT accountant in the UK, start by utilizing online directories of professional bodies like the Institute of Chartered Accountants of England and Wales (ICAEW), the Association of Chartered Certified Accountants (ACCA), or the Chartered Institute of Management Accountants (CIMA). Alternatively, you could use a matching service like Unbiased, which pairs you with an accountant based on your specific needs, such as inheritance tax.
Before engaging with an accountant, verify their qualifications and membership with a recognized professional body. Regular reviews of your estate plan are also crucial to ensure it remains current and aligned with changing tax rules and exemptions.
Remember, avoiding unregulated will writers is essential to prevent receiving outdated or incorrect advice that could lead to costly headaches down the road. Stay ahead of the curve by seeking the guidance of a qualified professional and regularly reviewing your estate plan for optimal results.
The Smith family's estate was hit with a surprise inheritance tax bill of £20,000 due to outdated financial advice on personal-finance matters from a retired accountant, highlighting the importance of seeking fresh and accurate property-related financial advice. To steer clear of such circumstances, it's advisable to consult a qualified accountant who is a member of professional bodies like the Institute of Chartered Accountants of England and Wales (ICAEW), the Association of Chartered Certified Accountants (ACCA), or the Chartered Institute of Management Accountants (CIMA), and to regularly review one's estate plan to keep it updated with the latest regulations and exemptions.
