Inheritance, and the issues surrounding it, is understandably one of families’ greatest taboos. It’s a tricky subject at best, and potentially fraught with problems. However, today’s elderly are in a position we’ve not seen before: as a generation you have wealth as a result of rising house prices, whilst the younger generations of your family are facing those very house prices as barriers, and significant pension problems.
For the older generations, this can be a difficult scenario to watch unfold. The economic resources of your loved ones, despite their diligence, work ethic, or success, just aren’t always on a par with your own.
Given that Inheritance Tax Receipts were valued at £4.9 billion in the UK between 2016 and 2017, it’s understandable that many of this generation want to see their wealth go directly to benefit their family. In fact, the average amount of inheritance received is £63,279 means many don’t get to see the benefit of their inheritance and legacy, whether that’s helping your own child face a difficult life stage such as during divorce, or help provide for the astronomical costs of raising their family, help plug a pension gap, or indeed provide a boost to getting on the housing ladder.
The amount that elderly households are hoping to leave an inheritance is growing. In 2012-2013, 44% of elderly households expected to leave an inheritance of £150,000 or more, compared with just 24% in 2002-2003. Yet you don’t stand to see the benefit of that – really, only the tax man does.
So How Can We Look at Inheritance Differently?
Looking at the sums it would make sense, for both financial and emotional reasons, that inheritance isn’t simply something that happens when you’re no longer around. It makes sense to be able to see your legacy in action, without sacrificing your own security.
Already, the current generation of grandparents are getting savvier and more realistic when it comes to leaving their inheritance. This generation are realising that as their grandchildren reach adulthood they need a financial boost in order to make a good start to adult life.
However, the problem comes because without planning this, and giving gradually over years, the tax man is still the main winner. To avoid this, you need to be thinking about what you want your grandchildren to inherit from as young as possible. This way you can contribute meaningfully to savings on their behalf, which don’t see your family caught in a tax quagmire.
How to Give in Your Lifetime
Money apportioned from an estate after you have deceased must go through the inheritance tax filter. Whilst there are some allowances, the reality is that much of this money could have been given to family before death, without being taxed, or taxed as heavily.
Typically we hear, particularly in the media, about taking the route of Equity Release as a means for freeing up funds for grandchildren. However, for many this is a scary route to take and they feel it jeopardises their own security, as well as potentially falling foul of the ‘deprivation of assets’ regulations. On the other hand, if you make sure you give from your cash supply then you can retain the security of your home, whilst boosting the security of your children and grandchildren.
Saving for grandchildren, starting young, on a regular basis, will ensure that when they reach young adulthood, they have some of their inheritance ready and waiting. At Shepherds Friendly we have two types of account which are an ideal way of passing on some inheritance during your lifetime.
The Junior ISA and the Young Saver Plan both allow you to save regular small amounts for your grandchild tax efficiently. This way you get to see the real benefits of your inheritance, rather than leaving it to chance. A Junior ISA can only be opened by parents but grandparents can contribute. Young Saver Plans can be opened by anyone as long as they have parental/guardian consent. Bear in mind, as with all investment products, your capital is at risk.