The ‘Baby Boomer’ generation is approaching retirement age and therefore means the next ten to twenty years will be decisive for the fortunes of families in the UK. Many people have parents in good health as well as grandparents.
As a result of these multigenerational estates, many families could be facing the prospect of having to plan for two inheritance tax bills. With increasing house prices and increases in asset values, the UK is facing a potential inheritance tax time bomb. In the UK as a whole, 28 per cent of postcode areas have seen the number of property sales exceeding the IHT threshold double in the past six years.
There has been a lack of education and awareness for this rising problem and therefore a lack of people using the variety of tools to help reduce the burden of IHT for family and friends.
Many families may consider themselves comfortable but may not know they fall into the bracket of seeing their estates subject to IHT. With the IHT allowance (£325,000) frozen since 2009 and assets/house values rocketing they may seem better off but overall could reduce the amount they are able to pass on.
The nil rate band has been static since 2009 which has led to an ever increasing IHT grab from the Treasury
Of course, parents want to pass on their hard-earned wealth to their families but increasingly many are looking to spread their inheritance across generations. 2 of every 5 ‘millennial’ grandchildren have received a lump sum from their grandparents compared to 1 in 5 from parents.
A survey carried out by Royal London predicted grandparents helping their families financially, before and after they die, could potentially be leaving a huge amount of wealth worth as much as £400bn. That’s A LOT of Inheritance!
There is a lot of misunderstanding among even informed consumers about what an individual’s IHT allowance is.
Many people believe that a couple’s joint allowance is now £1m. In fact, it will only reach that in 2020. Many do not realise that the additional allowance is only available on property, so if the majority of wealth is in other assets, such as stocks and shares, individuals may be liable for more than they think.
There is also a lack of understanding that these allowances can only be transferred to a spouse or partner, and that they only apply if the estate is inherited by a direct descendant.
Multigenerational planning can be complex, individuals face a huge variety of personal circumstances. It appears that a common concern for cross-generational inheritance is supporting heirs while the individual is still alive in order to mitigate IHT.
It is also important to parents and grandparents that they can retain control of their money should their health or other circumstances change.
It is clear that many people are not aware of the potential IHT problem. While more than a third of over-55s are concerned about IHT, only one in five has actually sought financial advice to help them reduce their potential tax bill
With so many inheritance tax planning tools available it is important that those who have large assets in addition to their properties – ‘the comfortable generation of baby boomers looking to manage their parental inheritance to protect their estates’, obtain the right advice so that they can make the most of them and reduce the amount of money that will be lost in IHT.