Tax breaks for grandparents who give money to the younger generations could narrow the intergenerational wealth gap, a leading wealth manager has pointed out.
David Nicol, chief executive of Brewin Dolphin, said the UK is currently storing up “huge problems for the future”, because younger people are not saving enough and he wants the Conservative Party to address the issue in its general election manifesto.
”Wealth is concentrated in the older generation,” he said in a letter sent to prime minister. Theresa May.
“The younger generation is not putting enough money aside for retirement, leading to increased intergenerational disparity.”
Brewin is calling on the government to give tax breaks to address this disparity, including a reduction in inheritance tax from 40 per cent to 36 per cent to those who give 10 per cent of their estate to their grandchildren in their wills.
Other suggestions include making all contributions to a grandchild’s Lifetime Isa, Junior Isa or pension to be immediately inheritance tax free, rather than subject to the rule that states that the giver must live for a further seven years after the gift was given if the gift is to be free of tax.
Mr Nicol also suggested giving tax relief on contributions to a grandchild’s personal pension or university fund, to further encourage grandparents to give to the generations below.
Mr Nicol also asked the Conservative Party to put a commitment to removing the £1m lifetime allowance on pensions into its manifesto.
“The UK has a savings crisis, and as things stand it is only likely to get worse,” he said. “This crisis affects us all. Everyone with insufficient savings may well live 40 years beyond retirement, during which time they will be reliant on other taxpayers.”
Adviser Colin Rodger, director of Alexander Sloan in Cardiff, said more generous inheritance tax exemptions “might also help encourage a flow of cash from grandparents to grandchildren to give them a helping hand.
“Brewin Dolphin are right to try and put this on the agenda,” he said.
“I think you have to differentiate between longer term savings such as pension and shorter term say to build up a deposit for a house.
“To be fair to the government, five years in auto-enrolment can be seen as successful at encouraging pension savings and many young people now at least have started building up a pension fund, which they probably would not have had before.”
“On shorter term saving, the help to buy Isa was introduced and gives a government bonus.
“This is good in principle but has some drawbacks in practice and perhaps the government could look at refining this and allowing more than the current £200 a month limit to be saved.”
rosie.murray-west@ft.com
