Advisers warn wealth transfers may need rethink amid crisis

Advisers warn wealth transfers may need rethink amid crisis

Advisers have warned that some transfers of wealth from one generation to the next may need to be delayed or rethought as a result of the Covid-19 crisis.

According to Leigh Philpot, head of wealth at Kingswood, the sharp drops recorded in global markets, together with restrictions arising as a result of the lockdown, may necessitate some "straight-talking" conversations with clients.

These conversations, Mr Philpot said, may see advisers encourage their older clients to rethink original plans to pass wealth onto the next generation, and make sure that clients have enough cash to see them through any unexpected expenses that have arisen during lockdown.

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Mr Philpot said: "At this time, it is important to be the voice of calm and to provide re-assurance, particularly to clients who were making plans for inter-generational transfers based on the assumed value of their wealth.

"It is a time to remind clients that have seen investment values fall significantly, that these losses are paper losses only, and that in time, markets should recover along with the value of investments."

He said advisers should be straight with clients, however, and point out that during these almost unprecedented times, it is difficult to predict with certainty when that recovery will take place.

"Therefore, advisers should manage clients’ retirement expectations in the current climate and be willing to engage in difficult conversations, pointing out that clients may need to consider potentially delaying the transfer of assets to ensure they have adequate provision for themselves in the near term", Mr Philpot added.

Having said that, there are some positives that could be drawn from the current situation – assets can be passed on with potentially lower IHT implications with the beneficiaries themselves seeing the rise in market values.

For example, house prices have fallen slightly on average across the UK year-on-year, with a recent Bank of England report suggesting property prices might fall up to 16 per cent this year. This could see more property values falling below the £325,000 IHT limit. 

Moreover, a drop in asset prices as a result of market falls could help push other asset values below the cap, as probate is measured on the money, property and possessions of the deceased individual, including any cash holdings or shares that do not qualify for business property relief.

For example, Aim stocks that are held for more than two years qualify for BPR, which reduces the value of a business or its assets when working out how much IHT has to be paid. 

Need for planning 

Despite this potential silver lining, the need for financial planning is very much apparent and Mr Philpot explains the government may need to continue raising money to fund its generous coronavirus payouts through emergency tax measures.

He said: "We are likely to hear more about a Wealth Tax to pay for the huge amount of government borrowing that will be needed to get through this crisis. Although the extent of these potential benefits is yet to be known, inter-generational wealth transfers could see their impact on certain families reduced.