IFAFeb 3 2022

Mere 12% of UK adults seek advice on wealth transfers

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Mere 12% of UK adults seek advice on wealth transfers

Just 12 per cent of UK adults sought help from an adviser when looking to transfer their money to younger generations at the end of last year, a report has found.

A report from the Family Building Society and Resolution Foundation, published today (February 3), found out of 8,749 adults surveyed, about half (51 per cent) made no plans whatsoever prior to transferring their assets to the next generation, while those who did plan simply saved more (16 per cent).

Other actions taken by people who did plan before transferring their money included seeking legal advice (10 per cent), downsizing on a house (9 per cent), reducing spending or selling assets (6 per cent), and working longer hours or taking a different job (3 per cent).

"There are three reasons why so few people sought advice," said David Batchelor, managing director of Wills and Trusts Wealth. "One, they don't know where to get advice. Two, they have to pay for advice now, and no-one likes paying. Three, they don’t understand the complexity of their decisions."

Batchelor said that lower-paid people would "rather have Sky for a year, than pay for advice.

"People would always rather just read something on the internet and then buy the drugs over the counter than go and see a doctor. Imagine how many people would go and see a doctor if they had to pay."

Advisers have previously been urged to “pick up the pace” when targeting younger clients over wealth transfers. Whilst many identify that an opportunity exists, few have taken steps to address it.

Research from Schroders published back in November 2020 found of 125 advisers, only a third (33 per cent) of firms had a specific proposition for targeting the transfer of family wealth to the next generation. While the majority (78 per cent) were aware of the opportunity.

Source: Resolution Foundation analysis of YouGov, UK inheritances and intergenerational wealth transfers, December 2021

The value of household wealth relative to the size of the economy has more than doubled since the 1980s, according to the report. It also predicted the value of intergenerational transfers to double by 2040.

Joshua Gerstler, chartered financial planner at the Orchard Practice, said the latest figures on advice uptake were "worrying" due to the mistakes individuals could make without getting help.

"There are so many tax implications (both positive and negative) and potential knock on effects of transferring wealth that it is imperative to seek advice" Gerstler said.

"People should be discussing this with their financial adviser to avoid making big mistakes and ensuring their loved ones get as big of a slice of the pie as possible.

"We find that as our clients get older they like to include their children in our meetings and discussions, so that everyone can be involved and understand the best way forwards for the whole family.”

When it came to inheritance tax planning, 17 per cent of those expecting to pay IHT last year did nothing to plan for it, the report said. By comparison, just 5 per cent gave a gift or larger gift (4 per cent) to offset the impact of IHT.

The value of inheritance tax revenue has increased from more than £3bn at the start of the millennium, to more than £5bn today. It is set to rise by around 40 per cent, to £7bn, by 2026-27.

Source: Resolution Foundation analysis of YouGov, UK inheritances and intergenerational wealth transfers, December 2021

Social care “uncertainty” looms

The report pointed to a “significant uncertainty” around the potential costs of care and pensions, which for some people has limited the share of wealth transfers they are willing to make through gifts.

“Instead, people hold wealth in case they need it themselves in the future,” the report explained. “Our results suggest that care costs are a key driver of uncertainty for older people, despite the fact the survey was collected after the government’s 2021 announcements on capping care costs.”

It found 45 per cent of over 65s are concerned about care costs, while 37 per cent of 45-64-year-olds are also concerned about the provisions they will need to make for their own care.

In September, prime minister Boris Johnson promised a cap on the cost paid by any one person for social care in their lifetime, set at £86,000 for people entering care from October 2023.

“Despite the recent changes to the cap on self-funded care fees, who knows what will be in place in the future?” said Mark Bogard, Family Building Society’s chief executive.

“The Treasury would really like for you to pay your own care fees but if you’ve already spent it, or given it away, they’ll be disappointed.”