IHT and climate change: To plan or to pay

As a financial planning professional, it is inevitable that inheritance tax has been on my mind and lips lately.  In 2025, IHT is very much the new ESG. Trending, talked about by many, unpopular.

It was a New York Times feature about air conditioning that triggered my decision to write about IHT.  It triggered my conclusion that IHT has similarities with climate change and the new IHT solution of choice, the Whole of Life Insurance policy, is very much the air conditioning of IHT planning.

According to the article, a French populist party is suggesting a national aircon installation programme to combat ever rising temperatures. The opposition claims this is an example of leaders addressing the symptoms of climate change rather than its causes. Air conditioning should be deployed sparingly for those who need it. Everyone else should focus on solutions that don’t make global warming even worse. This is much the same as my view on Whole of Life plans (that address the symptom of IHT legislation – the need to pay HMRC), that they should only be deployed where all efforts to address the causes have been exhausted.

See also: Beginning or ending with governance

I see wider commonalties between IHT and climate change:

• They both creep up on you as a result of inaction, a lack of foresight and planning and are a prefix to the word mitigation.
• They both might diminish the future security of the next generation.
• In both cases, the parties most affected may feel betrayed and robbed of what they feel is their right or privilege.
• One way to address them both is by distributing wealth in a fairer, more purposeful manner.
• The government could  do a much better job of managing policy and messaging  around these two matters and might even want to consider linking them together.

Financial advisers have long been encouraging clients to plan for a potential inheritance tax liability, just as climate scientists have for decades been crying for action to accept climate change. Many people put this off until later, until they are older, or richer, not wanting to stop accumulating just yet.  

The recent decision to deduct IHT from pensions is a bit like the wildfires, droughts and heatwaves running amok in the world right now. All of a sudden, the need to act is clear but the options are less and the window of opportunity much smaller.

For families who have sufficient wealth to have an IHT liability,  a 40% tax on that wealth will probably be much less harmful than the climate change induced 40-degree temperatures now becoming common.

Sadly, however, there is a risk that these temperatures  bring the tax liability forward for some families.  There were over 1,300 heat associated deaths during the UK heatwaves in summer 2024. Its admittedly always hard to have something taken away from you that you expected to have, whether that is 40% of your seven-digit pension pot or the grandchild that your daughter no longer feels able to birth in a heat taxed world.

While time is short for just in time climate action, there is time for some families to mitigate the worst impacts of IHT and various solutions available. The earlier you act, the less drastic the measures taken need to be. It makes all the sense in the world to gift what you can while you are alive and fit enough to fully enjoy the benefits, whether direct to your family or to charity or other pet projects.  

See also: Are questionnaires really a suitable substitute for an honest client/adviser conversation?

Nevertheless, the urge to nest on a large rainy day fund is common among the greater UK investor.  This is where better government policy could make the IHT “shock” easier to bear for families, while still supporting the economy and society.  Here are a couple of suggestions:

• To make people more comfortable with earlier wealth distribution, introduce a savings vehicle specifically designed to fund long-term care. Give individuals and their families peace of mind that they will have good quality care, with air conditioning, in a hot and vulnerable future. Make this a national care fund, which invests for social and environmental impact, as well as a financial return.
• Link the taxation of wealth to the harm that the wealth generates during the accumulation stage.  Incentivise the funding of a green and fairer economy by reducing the rate of IHT payable on pensions and ISAs invested in ethical,  sustainable and positive impact funds.

While crises, whether of fiscal or carbon budgets, require urgent remedies, the take up and support of solutions will be wider if we win the hearts and minds of all stakeholders. It is not just what you do but how you communicate it. Put yourself in other peoples shoes, explain the need for change and the positive benefits. Support people in adjusting to the new reality.

No one knows better than financial advisers that you can’t take people’s money from them or change their plans for nothing, you have to offer something in return. If the Treasury wants to tax what people treasure, then point them towards the new pot of gold they can pursue instead. A pension pot is not the only meaningful legacy that we can leave behind.