5 simple steps for getting on top of your intergenerational wealth plans now

In 2021, Barclays confirmed that an estimated £5.5 trillion is expected to pass between generations over the next 30 years. It has been dubbed the “great wealth transfer”.

The report also states that more than 80% of household wealth in the UK is currently held by the over-45s. As this passes to the next generation it will pose challenges for both those giving and receiving funds.

Early planning and professional advice can help both parties, ensuring the transfer is as smooth as possible and tax-efficient.

Keep reading for a rundown of how and why you need to get to grips with your intergenerational wealth plans now.

1. Preparation is key so understand and communicate your plans early

If you have a large estate that you are looking to pass on, you might want to do this on death, via your will.

A will is the simplest way to make your wishes on death known. But remember, you are free to communicate those wishes now.

Not only will this ensure that all affected parties understand what you want to happen, but it means you will still be there to explain your choices. This should help to avoid potential disputes after you are gone.

Dying without a will in place means that your estate will be subject to the laws of intestacy. Your money might not go where you want it to, especially if you have step-children or you are not married to your partner.

Communication is also key if you don’t intend to split your wealth equally among children. Last year, MoneyAge reported that this is the case for around 43% of UK adults, so you wouldn’t be alone.

Finally, preparing early gives you plenty of time to get to grips with any potential Inheritance Tax (IHT) liability, ensuring your loved ones receive as much of your wealth as possible.

2. Passing on financial lessons can help to ensure your beneficiaries are prepared

Coming into a large sum of money can present challenges, especially for young people who might not yet have learned important financial lessons.

After a long career, and through working with us, you will be in a great position to pass on the valuable knowledge and insights you have gained.

The lessons you pass on will be dependent on the age of your children or grandchildren, but could include the:

  • Value of money and the need to work, earn, and save to buy the things they want or need
  • Importance of an emergency fund to cover the unexpected
  • Difference between saving and investing and the need to balance risk and reward
  • Importance of differentiating between good and bad debt and budgeting within their means.

These lessons should give you peace of mind that the wealth you pass on will be in safe hands. And you will likely find that younger generations are keen to have these conversations.

A Royal London report from last year found that 75% of 18- to 24-year-olds spoke to their parents about money matters during their youth, compared to an average of around 50% of those aged 45 and over.

If you are still worried about how your money will be used, you might consider a trust. This could allow you to stipulate how and when the money can be accessed, and even where it is used. Trusts can be complicated, so speak to us if this is an option you are considering.

3. A living legacy could be tax-efficient and make a huge difference at just the right time

Passing your money onto the next generation during your lifetime has several financial and non-financial benefits.

IHT is payable at 40% of the value of your estate that exceeds certain thresholds. The nil-rate band has been at its current level since 2009, while the residence nil-rate band has been frozen for the last three years. The freeze on both rates was recently extended to 2028.

You’ll also pay IHT on any gifts that you make within the seven years before your death. For that reason, these gifts are known as “potentially exempt transfers (PETs)”.

Tax is payable at the full 40% if you survive less than three years from the date of the gift, but the rate tapers until year seven when the gift falls outside of your estate.

Some gifts are free of IHT straightaway thanks to certain HMRC exemptions:

  • The annual exemption stands at £3,000 for the 2023/24 tax year, with any unused allowance from the previous year carriable forward.
  • Regular gifts from income exemption, which you can use to make regular gifts – into a grandchild’s savings or investments, for example – as long as HMRC are confident the payment is regular, from income, and doesn’t negatively affect your standard of living.

From a non-financial point of view, you’ll be around to see the difference the money makes. You might also find that your loved ones receive the funds at the time in their lives when they need it most.

Get in touch

If you would like to discuss the best ways for you to pass on your wealth to the next generation, please contact us at info@janesmithfinancial.com or call 01234 713131.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

Remember that taper relief only applies to gifts over the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief. Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.

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