The recent Budget proposals relating to Inheritance Tax (IHT) reform have once again drawn attention to the critical importance of proactive estate planning. While many Advisers have rightly focused on lifetime gifting and NRB strategies, there remains a pervasive risk of regulatory and client detriment: the failure to consider alternative or additional Trust frameworks, particularly when client recommendations focus too narrowly, or omit the impact of other assets within the estate, such as ISAs.
Consumer Duty: A Lens on Omissions and Foreseeable Harm
The FCA’s Consumer Duty is clear: Advisers must act to deliver good outcomes for retail clients, avoiding not just mis-selling but also material omissions and any foreseeable harm. Silence on material considerations in the client file is no longer just poor advice — it may be a regulatory breach.
One such omission is the failure to assess the impact of tax-inefficient ISA growth within estate planning recommendations. While ISAs offer income and capital gains tax advantages during lifetime, there comes a point when they start to work against the consumer. The inclusion in the taxable estate for IHT is often overlooked in both advice and documentation — especially as balances continue to grow unchecked.
The 40% Drag: ISA Growth as a Future Liability
A common scenario sees clients holding substantial ISA portfolios, often well into six figures. These portfolios grow over time and so do their unspoken liability. ISA funds are fully exposed to IHT at 40% on death (subject to available NRB’s).
Without addressing this in the client file, or offering alternative structures, such as loan Trusts, Advisers may be exposing clients to unnecessary tax erosion. If the ISA is allowed to grow from £200,000 to £300,000 without intervention, the additional £100,000 may represent a £40,000 future tax liability. Ignoring this is both an omission and a foreseeable harm under Consumer Duty. A cost that is entirely foreseeable yet often goes undiscussed – the elephant in the room. If the Adviser has not reviewed this or explored mitigation strategies, this becomes a compliance risk.
Multiple Trust Frameworks: Why One Size Doesn’t Fit All
It’s important that Advisers take into consideration the wider piece from outset, the days of only recommending a Trust to use the clients available NRB has gone, and this continued approach risks poor consumer outcomes.
Often 3 different legal structures will be used to mitigate IHT on high value estates, where typically £325k per person is settled into a Flexible Trust, the balance of any capital available into a Loan Trust and surplus income into a Trust specifically written for the Gifts from Normal Expenditure Rules, rather than allowing income and growth to accumulate within the estate. Settling the Trusts in the right order is key to optimising the tax planning for the Periodic Charge on each 10-yearly anniversary.
To remain compliant and deliver good outcomes, the Adviser’s file should:
- Clearly show that alternative Trust structures were considered and discounted with reason.
- Assess the impact of ISA growth on the future estate — with mitigation options explored.
- Include a justification for any Trust recommendations in the context of the client’s wider financial position.
- Demonstrate that the Adviser has considered foreseeable harm, not just immediate planning benefits.
With Consumer Duty now fully in force, firms should expect increased scrutiny of their advice processes, client files, and suitability reports. Questions may no longer be “Was the product suitable?” but “Why was this solution chosen, and what was excluded?”
Advisers must ensure they are not just technically competent, but holistically engaged, especially in matters as complex as estate planning. A well-documented file that explores multiple Trust frameworks, tax exposure of all asset classes, and client-specific needs is the Adviser’s best defence — and the client’s best outcome.
Conclusion
Estate planning is not a one-size-fits-all exercise. The Adviser’s duty is to deliver good outcomes, not just suitable products. As the IHT landscape evolves and the FCA sharpens its lens on advice quality, the failure to consider or document alternative Trust strategies — and the omission of clear tax liabilities like ISAs — is no longer a passive oversight. It’s a foreseeable harm.
If you’d like help reviewing or redesigning your estate planning process — including file structure, Trust framework selection, and identifying gaps, we would be happy to assist. Get in touch to explore how we can strengthen your advice model, ensure Consumer Duty compliance, and improve outcomes for your clients.
It’s time we raised the bar — not just for compliance, but for clients.
Mark Wintle
BDM – WAY Trustees Limited