As the cost of living crisis bites, is it time to expedite wealth transfer plans?

Will Stevens

Will Stevens

As households continue to face huge inflationary pressures at a level not seen in decades, priorities have understandably shifted as they struggle to keep up with rapidly increasing living costs.

Our own research found that more than one fifth (22 per cent) of parents say the cost of living has affected their wealth transfer plans, with more than a quarter (26 per cent) saying they are now expecting to leave nothing at all.

Others have accelerated their inheritance plans, with over seven in 10 (72 per cent) whose plans have changed saying they have either already, or plan to, pass on money to their children early.

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In the Autumn Statement, a number of stealth taxes, threshold changes and cuts to tax-free allowances were announced, which will soon mean more taxes for all and impact wealth transfer plans for many.

The looming prospect of recession is a key concern for those contemplating changes to their wealth transfer plans. It is natural that during times of financial uncertainty, individuals tend to act more cautiously as worries, including job security, increased living costs and the prospect of investments underperforming, weigh on their minds.

But for parents there is the added concern of how their offspring will fare. While a third (33 per cent) of parents worry about the ability of their children or grandchildren to cope, distressingly for them around one in ten (13 per cent) are no longer in a position to help them financially. In fact, a tenth of parents say they are currently receiving financial support to help with higher living costs.

For the fifth (20 per cent) of parents who say they can cope with the current impact on their finances, they may be more able to support family members who are otherwise struggling or take advantage of deflated prices, such as in the property market.

However, for others the pullback in valuation causes individuals’ own needs to be reprioritised, reducing or delaying plans for future gifts.

There is another more worrying outcome. This is when parents neglect to factor in their own needs, or consider the long-term implications of inheritance changes, before helping their children.

Nothing lasts forever

While we are seeing a shift in inheritance planning behaviour as a result of today’s economic uncertainty, these changes are unlikely to be permanent. History has a habit of repeating itself and many current trends are mirroring 2009, when the UK last entered recession.

The Office for Budget Responsibility has forecasted that the UK’s current recession will last until 2024, so we can expect that any behaviour changes will take around the same length of time to revert back to what they were.

As with the previous period of recession, many with the greatest level of wealth are already retired and we are therefore likely to see increased levels of financial support provided down the generations to support the rising costs of living.

As well as increased gifting of assets, decreases in property values could be advantageous for reducing capital gains tax bills.