Inheritance Tax 

Helping clients pass on their wealth

Helping clients pass on their wealth

The latest data by the Office for National Statistics, published on October 30, reveals the wealth gap between generations in the UK continues to widen. The findings highlight larger inheritances becoming more likely as individuals grow older, peaking at age 55 to 64 years.

Unsurprisingly, this demographic also receives the highest transfers in value on average – assets that end up representing only a small part of their overall wealth.

On the other hand, the least wealthy and youngest individuals receive smaller inheritances on average, but these make up a much larger proportion of their total wealth.

However, the age distribution of those receiving an inheritance varies from those receiving a cash gift or loan, which was most common among younger people.

Knowing how clients save and send money, and understanding the impact of transfers between generations on wealth inequality in the UK, is a crucial first step to helping clients reach their financial objectives.

Key trends

In its annual Wealth and Assets Survey, conducted between July 2014 to June 2016, the ONS looked at how receipts of inheritance varied across age, income and wealth distribution.

It found some 3 per cent of those in the lowest income group received an inheritance of £1,000 or more at some point in the past two years, compared with 6 per cent in the highest income group.

This compared with just 1 per cent of those in the lowest wealth division receiving an inheritance of the value of £1,000 or more, compared with 7 per cent in the highest wealth division.

Key Points

  • ONS figures show how inheritances become more likely as individuals grow older
  • Planning intergenerational wealth should start early
  • Many younger people are relying on inheritances to solve their financial problems

People aged 55 to 64 years had the highest average value of inheritances over the value of £1,000, with a median of £33,000 among those receiving them.

This compared with £4,000 for those aged 16 to 24 years and £5,000 for those aged 25 to 34 years.

However, the age distribution of those receiving an inheritance also varied from those receiving a cash gift or loan, most commonly received among those aged 25 to 34 – among whom 11 per cent had received a gift or loan above £500 in the past two years.

According to Jason Witcombe, chartered financial planner at Progeny Wealth, the findings come as no surprise.

He says: “It is not necessarily the way to create a stable, happy society but it is not surprising that, on average, those people with wealthy parents will probably end up wealthy themselves.

“For those families who wish to think in an intergenerational way, the key is to start early and do this on a gradual and structured basis rather than leaving it until your 80s and expecting to be able to come up with a last-minute quick fix.”

Protecting wealth transfers

Making it easier to pass on wealth from one generation to the next – while parents and grandparents are still alive – could be one way to tackle the growing financial divide between generations.

Sarah Phillips, inheritance tax expert at Irwin Mitchell Private Wealth, believes that increasing amounts of gifts and loans, as older generations accumulate more wealth, will need increased legal protection.

She says: “Many think that transferring money between families is without risk, but with loans in particular if there is not a proper schedule and legal protection in place, then parents or grandparents can find themselves out of thousands of pounds.