Keeping it in the family – addressing the taboo

The Coronavirus pandemic has allowed many of us time to ponder how our wealth can be passed down through the generations. A vast amount of wealth is being accrued by individuals and acquired by beneficiaries each year and at TPO we have seen an upsurge in the requirement for advice on the most tax-efficient ways of transferring wealth to the next generation.

Despite the introduction of the transferable Nil Rate Band in 2007, the facility to pass your pension fund to successive generations outside of your taxable estate on death in 2015 and the establishment of the Residence Nil Rate Band in 2017, inheritance tax (IHT) receipts have continued to rise year on year since 2009. 

More individuals than ever are now able to leave behind sizeable assets and over the next 30 years, approximately £5.5 trillion will be transferred between generations in the UK.¹ With an increasing number of estates expected to incur an IHT liability in the future, a generational wealth plan has never been more important.

Addressing the taboo 

Discussing inheritance tax and next generation wealth planning requires a careful balancing act: many families know what they want for the next generations and why they should be planning ahead but there are also a number of why nots that are preventing them from addressing this challenging topic.

Whys

1. Clients often talk of a long-standing sense of responsibility towards their loved ones. They want to provide for their family, even when they’re no longer there, by helping them to buy their first home, kick-start a business or pay for their grandchildren’s education.
2. Security is another principal concern for our clients who wish to ensure that their wealth benefits their family so that their successors can enjoy a good standard of living, are protected against emergencies, and have a useful platform from which to make the most of their own successes.
3. Passing on wealth to the next generation can also be an opportunity; some benefactors want to ensure their family has the financial security and freedom they need to be happy and to be able to make important decisions, such as career choices. 
4. Often clients wish to ensure a legacy is left for several generations.
5. Philanthropy can also play a part in IHT planning. Many of our clients have causes and charities that they are passionate about, and they may wish to leave a part of their estate in support of this.
6. Tax is perhaps the most explicit reason for wanting to discuss inheritance tax planning. Without skilful management, an IHT bill can account for a large proportion of your estate. 

Why nots

1. Family conflict is a great concern for many families when discussing inheritance and different family members will have different ideas about what is ‘fair’.
2. Individuals can also be deterred from planning because of their own expectations, worrying that beneficiaries will become complacent, unambitious and unfulfilled if they have little incentive to work for themselves. 
3. Just as leaving a legacy is a motivating factor, it can also be a debilitating one. Families are often wary of the potential dissolution of their wealth, particularly if there are concerns about the capabilities of the beneficiaries. 
4. The reluctance of clients to consider their own mortality can encroach on their ability to plan for their own death. Beneficiaries may also be reluctant to bring up their concerns about a potential tax bill for example for fear of seeming too ‘eager’ to take control.
5. There are often intricate, financial planning technicalities associated with successfully passing down wealth that can be overwhelming and disconcerting.

At The Private Office we believe that the whys outweigh the why nots, and although the conversations can be difficult, passing wealth to the next generation will be a great help to your family. If you would like to discuss your personal circumstances with one of our experts, please get in touch. 

Please note: The Financial Conduct Authority (FCA) do not regulate estate planning, tax or trust advice.

If you’re considering the best way to pass on your wealth to your loved ones why not sign up for our latest series of webinars ‘Keeping it in the family’.

This two-part series of webinars explore in more detail how you can minimise taxes on your estate and looks at the practical tasks that need to be considered in order to pass on more of your wealth to your loved ones.

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¹ Passing on the Pounds report, Kings Court Trust, 2017