Life was good in 1967 Britain: the first colour television broadcast was made on BBC2, Sandie Shaw won Eurovision and Beatlemania was in full flow.
August 1967 was particularly sunny and warm and annual price inflation (RPI) sat at just 1.4 per cent.
Within 12 months, RPI reached 5.7 per cent, subsequently remaining above 5 per cent for 13 years, including five years above 10 per cent, and peaking at an eye-watering 26.9 per cent in August 1975.
From 1967 to 1983, inflation averaged 11.1 per cent a year, and the price of goods increased by 540 per cent, having a devastating impact on the standard of living.
Those who were starting out in life in 1967, looking to buy a home and raise young families, are now in their 70s and 80s with very different aspirations and concerns.
But if inflation makes a comeback, as is expected, what does this mean for them now that they are retired and for their later-life and estate planning considerations?
Most people in later life have two overriding objectives: leave the best possible legacy for their family and ensure they have enough money to meet their own life needs.
The two are not mutually exclusive as their accumulated wealth may need to be used for either purpose depending on how life pans out. Advisers therefore need to help them plan for all possible eventualities.
Inflation and capital taxes
Let us consider the impact of inflation on legacy aspirations. In March 2021, the chancellor froze all inheritance tax thresholds until 2025/6.
In an inflationary environment where asset prices, particularly property values, are increasing, more estates will be dragged into paying IHT.
Those who are not actively looking to sell their properties may be blissfully unaware that their assets have crept above the nil rate band and the prospect of IHT being levied on their estates may come as a surprise to them.
For those with assets above £2m, again likely to be a growing number, the residential nil rate band taper will accelerate as the value of their estate grows and so they may not enjoy the same level of relief they had been expecting.
Gifting of IHT exempt assets, such as business-relief-qualifying assets may be considered as a way of mitigating this.
Similarly, more clients could be dragged into the capital gains tax net if they wish to crystallise gains made on other assets.
Keeping track of rising asset values relative to tax exemptions and thresholds could make a real difference to the legacies clients are able to leave to their beneficiaries, or to the amount of money available for clients to pay for their own life needs.
Proactive management will become an increasingly important aspect of the adviser role in an inflationary environment.
The 'real’ value of money
Many clients looking to maximise their legacies while maintaining access and control consider BR-qualifying investments, of which there are now a variety on offer from a number of investment managers.
