Falling property and share values have lead to a dramatic reduction in inheritance tax planning, according to the UK financial services firm the Way Group. Investors may think that falls in the value of their homes and share portfolios will allow them safe passage from the punitive 40 per cent IHT hit on their assets. But group chairman Paul Wilcox warns that many are being lulled into dangerous complacency.

“Anecdotal evidence throughout the industry indicates that few advisers are working on IHT mitigation because of the perceived collapse in personal wealth – but in reality, the credit crunch has generated the most ideal environment for such planning for many years,” he said.

“Although the transferable Nil Rate Band has taken a number of more modestly wealthy individuals out of the IHT trap, the number of taxpayers likely to pay this tax is substantial.

“WAY has conducted research into London property prices in order to build a picture of the temporary impact of the wealth destructive effects of the mortgage famine.

“Looking at terraced houses, for example, it seems that those living in well-heeled suburbs like Camden, Fulham and Islington (even after recent substantial falls in values) still have properties worth in excess of a couple’s Nil Rate Band,” he added.

“Meanwhile, a couple living in the borough of Wandsworth have seen their terraced house fall from £620,000 down to £500,000, according to Land Registry data. But even with these falls, the typical property represents a valuable asset and needs to be protected from IHT.”

The typical equity portfolio has also lost around one third of its value in the past 12 months, and so combined with the dip in property values, proportionately one can remove far more from one’s estate today than a year ago, according to the group.

“So we are saying that now is the time to transfer assets into IHT protected schemes, while prices remain relatively cheap,” said Mr Wilcox.

The group sees a myriad of reasons for kick-starting IHT planning now. By moving assets into trust now, the resulting change in beneficial ownership will trigger a Capital Gains Tax point, but at current depressed levels very few people will have to pay any CGT.

Also, any recovery in values, once assets are transferred, will conveniently occur outside the donor’s estate thereby saving substantial IHT on that extra value (IHT savings at 40 per cent far outweigh any future CGT at only 18 per cent on gains above the allowance).

There will inevitably be a recovery and assets will substantially increase in value. Recent market activity suggests that house prices are beginning to rise in some parts of the UK. Banks will begin to offer mortgages again to first time buyers and re-mortgagers which will further underpin market recovery.

Though retaining some volatility, stock markets have remained off the lows of last year and no-one should doubt the potential for a worthwhile recovery later in 2009 or early 2010.

Mr Wilcox added that recent research by WAY indicates that taxpayers adopting IHT mitigation are doing so much later than they perhaps should to get best value from the seven year period it takes for asset transfers to fall out of one’s estate.

“The IHT mitigation market has moved on very much in line with other contemporary developments in the investment management arena,” he added.

“We can now deploy highly flexible trust arrangements in which trustees have extensive flexibility in passing benefits to the donor and/or beneficiaries as dictated by circumstances rather than simply by prescription.

“In addition, these arrangements can now contain the kind of managed portfolios investors would have held, in any case, had they not been planning for IHT. It is now even possible for IHT-shielded portfolios to be managed on the most contemporary of investment platforms,” he said.

Incorporated in 1996, The Way Group is a privately owned financial services group. The founders of the company include ex-independent financial advisors who specialised in offering portfolio management services to private and corporate investors.