Intergenerational wealth planning: Is it time to talk money?

Despite predictions of Inheritance Tax (IHT) being cut or removed altogether, the chancellor of the exchequer, Jeremy Hunt made no mention of the tax in his Autumn Statement speech. And according to research published in IFA Magazine, IHT could hit a record high during the 2023/24 financial year, having already increased 17.1% in 2022/23. 

If you’re currently making plans for passing on your wealth after you die, much of your focus might be on reducing the IHT burden for your beneficiaries.

However, there is much more to think about when making intergenerational wealth plans, such as communicating your wishes to younger family members and making arrangements for later-life care. 

Read on to find out what factors you might want to consider and how intergenerational wealth planning could benefit you and your family. 

Why planning for intergenerational wealth is so important

Intergenerational wealth planning could help to reduce the amount of tax due when wealth is passed down.

If the value of your estate exceeds the £325,000 nil-rate band (2023/24), there may be IHT to pay, unless you’re leaving everything to your spouse, civil partner, a charity, or another exempt community organisation. 

According to research published in This is Money, the number of households paying IHT increased by 17% in the 2020/21 tax year. So, it’s worth checking if IHT could affect your estate and making plans to ensure that as much of your wealth as possible is passed on to your loved ones.

Without careful planning, your loved ones could lose more of your wealth to tax than is necessary. 

However, intergenerational wealth planning is not only about mitigating a potential IHT charge. A financial planner could help you take a holistic approach that includes all aspects of passing on your legacy, not just your wealth.

Intergenerational planning: Things to consider

A holistic approach to intergenerational planning might include:

• Helping older family members plan for the retirement lifestyle they want
• Supporting younger family members to start building wealth as early as possible
• Strengthening family relationships by talking openly about your inheritance plans
• Deciding on the best time to pass on your wealth 
• Planning for complex situations, such as blended families
• Helping younger generations to fund big investments, such as buying their first home
• Planning financial support and care for younger children in the event of parental death
• Managing IHT efficiently. 

Intergenerational wealth planning tips

1. Start saving and planning early

The earlier you start planning the more options you’ll have and the more time to seek financial advice, discuss plans and make decisions as a family. 

Also, starting to plan as early as possible gives younger generations longer to save, invest and educate themselves about money management. 

You’ll also be able to explore options for minimising the amount of IHT that is due when you pass on your wealth. 

2. Talk openly to your loved ones and beneficiaries

You might feel uncomfortable discussing your death and inheritance with family and friends. But being open about your wishes could help everyone plan and feel prepared when the time comes.

Talking through your options may be especially important if you have a blended family or if you want your inheritance to be shared between multiple families.

Being open about your plans could ensure that:

• Your wealth goes to who you want it to
• People aren’t missed out
• Expectations are managed
• There are no unpleasant surprises or disagreements. 

3. Make use of IHT exemptions

There are various IHT exemptions that could help you to pass on more of your wealth to younger generations.

For example, you might choose to gift assets including money, shares, properties, or possessions. 

You can give away up to £3,000 worth of gifts each tax year without them being added to your estate for IHT purposes. And there’s no IHT to pay on gifts to spouses or civil partners.

However, there may be IHT to pay on any gifts given less than seven years before you die. 

You could also place assets in a trust for loved ones. This could help you pass on wealth while you’re still alive or provide for family members who are currently too young to manage their affairs. Some trusts are exempt from IHT, such as those that contain “excluded property”.  

However, the rules on IHT, gifting and trusts can be complicated, so it’s worth talking to a financial planner to help you understand your options. An expert can help you to plan ahead, allowing you greater potential to pass on more of your wealth in the most tax-efficient way. 

4. Pass on your pension

Many schemes will pay a proportion of your pension or a lump sum to beneficiaries when you die. Make sure you complete an “expression of wish” form to let your pension provider know who you would like your pension to go to in the event of your death.

Because a pension falls outside your estate for IHT purposes, it can be a really useful way to pass wealth onto your beneficiaries. Bear in mind though, that there may be other tax that your beneficiaries might become liable for.

With the abolishment of the Lifetime Allowance (LTA), that limited the amount you were allowed to build up in your pension without incurring tax, your pension could prove a very a tax-efficient way for you to leave wealth to your loved ones.

With so much to consider, it’s worth talking to a financial planner to find out if using a pension to pass on your wealth might be appropriate for you and your beneficiaries.

5. Speak to a financial planner

Discussing death and inheritance with your family might be an emotionally charged experience and making financial decisions may feel challenging.

A financial planner could objectively review your finances and help you plan ways to build generational wealth in line with your goals and values. 

They have the expertise to offer advice on tax planning and they can use forecasting tools such as cashflow modelling to help you understand which assets you could give away without jeopardising your own financial future. 

Get in touch

If you’re concerned about how to protect your legacy and want to learn more about how we can help ensure your family wealth passes safely to the next generation, please get in touch. 

Email info@lloydosullivan.co.uk or call 020 8941 9779 to see how we can help you.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.