Inheritance Tax  

How to keep wealth in the family

  • Describe the challenges of passing on assets later in life
  • List the differences between gifting and trusts
  • Describe the process one has to go through when considering gifting
CPD
Approx.30min
How to keep wealth in the family

The question of how and when to pass on wealth to younger generations is becoming increasingly pressing. 

In addition, advisers and their clients are often frustrated by the increasingly burdensome and overly complex nature of the UK’s inheritance tax system.

Millennials stand to inherit trillions over the next two decades. But how much of that net worth, which is often tied up in parents’ and grandparents’ pensions and properties, will actually be passed on, and passed on tax-efficiently?

While it is not always easy for clients to discuss gifting wealth and inheritance with their loved ones, gifting much earlier on in life, and in smaller amounts, could be one way to avoid a huge tax burden later on.

Navigating the intricacies of IHT, estate planning and setting up trusts can be extremely complicated, and this is where financial advice can help.

It is also worth noting that if advisers fail to engage new clients and younger generations they risk missing out on a £1.2tn windfall.

So how can advisers help clients make tax-efficient gifts to their children and grandchildren, while also making appropriate provision for their own income needs later on in life?

These were some of the topics discussed at a recent FTAdviser masterclass held on March 13, sponsored by Octopus Investments and Canada Life, which examined how to better assess the intergenerational wealth needs of clients.

During one of the panel sessions, which focused on some of the taxing questions that often arise as a result of intergenerational wealth transfers, Rachael Griffin, tax and financial planning expert at Quilter, explained that passing on wealth was an important aspiration for many clients.

She said: “They’ve worked all their lives and they’ve got an aspirational will to actually gift to the future generation.”

Yet, while clients may have the very best intentions, inevitably, they will be faced with some constraints and limitations as they come to pass on their wealth.

Challenges

When it comes to clients’ attitudes towards wealth, it is about control as well as trust, Ms Griffin pointed out.

She explained: “Clients have this quandary of wanting to gift money away, wanting to keep it within the bloodline and not wanting HM Revenue & Customs to be the biggest beneficiary, but equally, they don’t want to gift and end up not having enough money themselves to afford a comfortable retirement or long-term care.”

 “People want their money to be passed on for a specific purpose generally, so giving lump sums to an individual to fritter away is not necessarily what they want to do.

“But if it’s for a house deposit or towards school fees then I think it’s much more of an engaging position.”

Often, there is a lot of emotion tied up with giving away money, and clients often do not know where or when to start or even how much to give away, noted another panellist, Jason Witcombe, chartered financial planner at Progeny Wealth.