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A British taboo: Talking about money & inheritance

There is a long-standing stereotype that British people avoid conversations about money. Yet there is a generation below us who are set to inherit a large amount of wealth, along with all of our financial habits and anxieties that go with it. We discuss intergenerational wealth and how inheritance planning can ensure your children and grandchildren are prepared for the future.

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"Shush don't talk about money"

There is a long-standing stereotype that British people avoid conversations about money. As a nation we find it impolite to discuss finances amongst friends or around the table at dinner. On top of that people feel a lot of shame surrounding money struggles and don’t like burdening others with their woes. The problem is, apart from the obvious of this creating a lot of anxiety about managing our finances, we have a generation below us who are set to inherit a large amount of wealth and all of our financial habits and anxieties that go with it.

A 2020 study into the financial behaviours of UK adults, released by the Money and Pensions Services, shows that 29 million adults don’t feel comfortable talking about money.  48% surveyed admitted they also regularly worry about their finances and 71% of young adults (18-24-year-olds) worried about money once a week or more. People are also finding it difficult to get by financially due to the impacts of the pandemic but the value of inheritances could double in the next 20 years, with £5.5 trillion expected to pass to the next generation over the next 30 years.

Inheritance: how is money passed down to other generations

So how is wealth typically passed down to family members and what impact does this have on finances? We can understand the facts behind this using data from the Office of National Statistics:

  • Pots of inheritance with the largest value came from people inheriting from a spouse.
  • Those aged 55 to 64 years were the most likely to receive an inheritance and also received the largest inheritances on average.
  • Individuals with the most income and wealth were likely to receive the largest gifts and loans.

There is no surprise that recipients of inheritance are likely to be a “baby boomer” spouse. We live in an era of increasing divorce rates and re-partnering which impacts on our finances and widens our family structure.  It is essential that you constantly review who you leave your money to and how much. If you don’t do this the potential for family fallouts is greater and the people you love in your life can end up inheriting none of your wealth if the right paperwork, financial and legal structure isn’t in place.


Divorce & separation finance tips

How does inheritance tax work?

Life expectancy has increased over the years along with the age of a beneficiary, someone who is entitled to or receives inheritance.  Baby boomers receiving inheritance have also seen the greatest increase in the value of their assets compared to other generations so those leaving the money will no doubt want to ensure that beneficiaries can enjoy it tax-efficiently for many years to come. Figures from HMRC for the 2020/21 tax year show £5.4bn was collected in inheritance tax, an increase of £190m. The receipts from inheritance tax have been increasing annually and look to increase further still, yet there are simple, often overlooked measures to mitigate inheritance tax.

There is inheritance tax to pay if the value of an estate is above £325,000 and you decide to leave inheritance to people other than your spouse, civil partner, or charity. The £325,000 threshold can actually be higher though depending on someone’s circumstances so check that out with a financial adviser, along with how to mitigate such tax. They will be able to take in to consideration how things like the residence nil-rate band, gifting and marital status impact on the inheritance of property. Then there are even more things you can’t afford to get wrong like wills, taking out insurance for inheritance tax bills and much more. If you want to seek financial advice, one of Unividual’s Chartered Finanical Planners are best placed to support the planning of your finances.

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It is time to talk about money

There is huge benefit to be gained for families who break the taboo of talking about money.  Not only would it reduce anxieties and stresses around money but family involvement in finances could also minimise financial related upsets after death.

Research undertaken by Quilter found that one in five baby boomers (aged 55 to 65), would prefer to pass on inheritance straight on to the next generation.  If you look at the ONS data we referred to before, where people with money are continuing to inherit more money, you ask the question does the recipient really need the money? The Quilter research found that 81% of people pass their inheritance straight to their own children. A further 10% skipped a generation and handed it to their grandchildren. Many 55–65-year-olds have benefited from rising asset prices during their lifetime, like houses. Many have savings, investments, and other wealth, so may feel that their children or grandchildren need it more than they do.

Tempted to just sit on your cash?

The problem with all this is families sit on cash, some of which is wasting away in a bank account. Generally people think of their money as something you leave to your next of kin when you die. In reality people could plan early and support younger family members who have an immediate need for financial support. Not only does this help them but you get great satisfaction out of watching them enjoy it. This money can then be invested by those children (if they are over 18) or you can create tax-efficient savings pots for your children on their behalf.  The really important step in this is involving children (some who might be adults) in the decision making and education process. They can learn how money management works, understand the value and benefits of financial advice, so they are educated early on and therefor don’t carry the same level of stress and anxiety around finance.

The world we live in today is not easy. Our children and grandchildren have rising debts, its hard to buy your first home and that is before we even get started on rising problems with long-term care and the potential extinction of state pension. The greatest gift of all, which they may not appreciate right away, is financial independence, a healthy relationship with managing their money and ultimately a good nights sleep!

Gifting in inheritance planning

Gifting is a great way to reduce the liability of inheritance tax, this could include money, personal effects like jewellery, property or stocks and shares.  When planning inheritance it is important that you utilise gifting to reduce the amount of money forming part of your estate in your will. There is no inheritance tax to pay on gifts between spouses or civil partners, as long as they live in the UK permanently and are legally married or in a civil partnership with you. You also don’t have to pay inheritance tax on gifts to charities.

Outside of these rules you can also gift up £3,000 every tax year, which is known as your ‘annual exemption’. Not many people know you can use this annual exemption on one person or split £3,000 up to multiple people. You can also carry any unused annual exemption forward to the next tax year, for one tax year. On top of that we would take a look at additional gifts you can make of up to £250 per person each tax year, as long as you have not used another allowance on the same person. Birthday and Christmas gifts are also exempt from inheritance tax and you can give a tax free gift to someone who is getting married or starting a civil partnership. This can be £5,000 to a child, £2,500 to a grandchild or great-grandchild, £1,000 to any other person. Plus you can combine a wedding gift allowance with any other allowance, except for the small gift allowance.

There is no tax to pay on gifts if you live for 7 years after giving them. If you do pass after gifting beneficiaries will be taxed on a sliding scale known as taper relief. Yes there is a lot of jargon in our industry that we will help you to cut through! Ofcourse, taper relief only applies if the total value of gifts made in the 7 years before you die is over the £325,000 tax-free threshold.

There are so many other options you can use with gifting to mitigate inheritance tax like payments to help with another person’s living costs which could enable you to support your child by paying their rent.

What to do next?

If you think you may be in line for an inheritance but feel your children or grandchildren would benefit more, perhaps now might be the best time to talk about money.  One of our client’s Janet, who lives in Maidenhead, left a recent review on our London Financial Advice Google Page: “I inherited a sum of money and had no idea what to do with it. A friend and her family used Unividual and introduced me to their adviser. I have been very pleased with their advice. They are friendly and efficient and keep me well informed about my investments”. Whether you are the benefactor or the possible beneficiary, having the conversation now can make sure the money goes to the right person, at the right time and in the right way.  As the old BT advert said – it’s good to talk. There has never been a truer set of words, and if you need extra support you know where we are!

Inheritance Tax planning is not regulated by the Financial Conduct Authority.

Author and Editor: Cherie-Anne Baxter

Date of Article: 16th September 2022

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