These days, many advisers aren’t being asked just to bolster the wealth of the individual who walks through their office door.
Advisers are increasingly asked to figure out how to finance the needs of several generations.
How to fund university fees, assist children onto the property ladder, make sure a retirement income is in place and the property is paid off for the client when they want to exit the workplace and still have cash for elderly parents who may need good quality care are all considerations of the squeezed middle.
Essentially, many financial advisers today are being required to be family offices – no longer just the preserve of the super wealthy but now required by the Bank of Mum and Dad.
He would be wiser to realise how much happier the electorate would be if he just made it easier for middle Britain to assist their own families.This is why chancellor Philip Hammond would be wise to consider using his forthcoming Autumn Budget to make it easier to pass wealth from one generation to the next.
It has been mooted that chancellor Philip Hammond is planning an Autumn Budget firmly skewed at younger voters.
But as we near Brexit there is no bottomless pot of money in the nation’s coffers to deliver election-winning sweeteners to younger voters so he would be wiser to realise how much happier the electorate would be if he just made it easier for middle Britain to assist their own families.
There are several measures he can introduce that will be popular with people of all ages, according to Julia Rosenbloom, private client tax partner at Smith & Williamson.
Making it easier to pass wealth from one generation to the next, while parents and grandparents are still alive, is something the chancellor should give prominence to in this Budget, says Ms Rosenbloom.
“There is a clear benefit to society as a whole if wealth can be passed efficiently on to the next generation, allowing children and grandchildren to invest it,” she adds.
One way to do this is to increase the amount that can be transferred into trusts without a lifetime inheritance tax charge.
Transfers into trusts in excess of the nil rate band (currently £325,000) generally result in a lifetime inheritance tax charge at a rate of 20 per cent, with a further 20 per cent payable if the transferor dies within seven years.
One of the main purposes of trusts is to allow for controlled gifting to the next generation, but Ms Rosenbloom notes they have lost their appeal because of the potentially high lifetime tax charges associated with establishing them.
She says: “The government needs to accept that it’s not a good idea for spendthrift children and young adults to take vast quantities of wealth at an early age and should remove the £325,000 limit in order to allow more extensive use of trusts.”
Another option for Mr Hammond is to increase the tax-free gift allowance from the £3,000 limit that can be given to children and grandchildren each year.
Given this amount has not changed since 1981, an increase that is at least in line with inflation would be appropriate.
A third option is allowing regular gifting from capital.
There is currently a relief which allows gifts to be made without the seven-year survival requirement.
Such gifts qualify for this exemption provided that a regular pattern of gifting is established and the gifts are made out of income, while leaving the transferor with sufficient income to maintain their usual standard of living.
While this helps with the transfer of wealth to future generations, Ms Rosenbloom points out the rules are unnecessarily restrictive.
She says: “The relief should be expanded, so that all regular gifts qualify for the exemption and those that don’t have sizeable annual incomes can also benefit.”
Ultimately some assistance for the sandwich generation would put some much-needed smiles on faces.
Wouldn’t that be a nice outcome for a Budget?
emma.hughes@ft.com
