Managing inheritance tax planning
This is not an article about managing inheritance tax planning, per se. Although, I can certainly help if you want advice on the subject and help you not miss out on the valuable allowances available.
It is estimated that some £327bn will be passed down by ‘baby boomers’ (those people aged between 55 and 74) over the next ten years. (1) If we extend the time horizon, it is estimated that £5.5 trillion is expected to pass to the next generation over the next 30 years. (2) That is a lot of money!
The recipients of this windfall are expected to be other ‘baby boomers’ and people in the younger Generation X (40- to 54-year-olds) or Millennial age groups, those aged between 25 and 39. (3) Data from the Office of National Statistics paints the following picture:
- Inheritances from spouses of the recipient had the highest value, on average, and were mainly distributed among those aged 55 years and over,
- Those aged 55 to 64 years were the most likely to receive an inheritance and also received the largest inheritances on average, and
- Individuals with the most income and wealth were likely to receive the largest gifts and loans, on average.
No surprise in the recipient typically being a spouse, and the spouse also being a baby boomer, as people tend to (but not always) partner with someone of their own age. We do live in an era of increasing divorce rates and subsequent re-partnering and second families. So, choosing who you leave your money to, and how much, is often more complicated than it used to be.
Intergenerational wealth and IHT
As our life expectancy has increased, then the age of the recipient of an inheritance has also increased. The baby boomers receiving the inheritance are those people who have enjoyed the greatest increase in the value of their assets, money going to money.
Those leaving the money will no doubt want to ensure that their beneficiaries, be they family, friends and/or charities, enjoy their windfall. They will also probably wish to minimise the tax man’s take on their bequests in a legal and ethical way. Figures from HMRC for the 2018/19 tax year show £5.4bn was collected in Inheritance Tax; an increase of £0.2bn on the previous year so managing inheritance tax planning is serious business. The receipts from Inheritance Tax have been increasing year on year for some time and look to increase further still. Inheritance Tax is often referred to as the voluntary tax as there are simple measures to mitigate it, which are often overlooked.
Helping younger family members
Many 55–65-year-olds have benefited from rising asset prices, (e.g. houses) during their lifetime. Many have enough savings, investments, and other wealth, so may feel that their children or grandchildren need it more than they do.
Instead of thinking of your money as something you leave to your next of kin when you die, why not plan early and support younger family members who have an immediate need for financial support?
The evidence from the Quilter research indicates that many beneficiaries pass the money on.
If you are thinking of leaving money to specific people, are you sure they really want or need the money, or is there somebody else in the family who could benefit more? Similarly, if you think you may be in line for an inheritance, but feel your children or grandchildren would benefit more, perhaps now might be the best time to – talk about money. You might be able to see the recipients enjoy the money you have provided for them.
Whether you are the benefactor or the possible beneficiary, having the conversation now can make sure the money goes to the right person, at the right time and in the right way and start managing inheritance tax planning.
Tax treatment varies according to individual circumstances and is subject to change.
- Intergeneration advice: Seizing the opportunities presented by wealth transfer, Brooks MacDonald, May 2019.
- Passing on the Pounds report, Kings Court Trust, 2017.
- Office for National Statistics - Intergenerational transfers: the distribution of inheritances, gifts and loans, Great Britain: 2014 to 2016
- The research was commissioned by Quilter and undertaken by YouGov Plc, an independent research agency. All figures, unless otherwise stated, are from YouGov Plc. The total sample size is 1,544 UK adults, comprised of 529 Baby Boomers, 501 Generation Xers and 514 Millennials. Fieldwork was undertaken between 07/07/2020 - 08/07/2020. The survey was carried out online.