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We Are Family - the importance of intergenerational planning

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Many parents and grandparents are keen to pass on their wealth to loved ones, but there is little understanding about how this can be done in a controlled and tax-efficient manner.

When someone dies, their estate becomes liable for inheritance tax. In simple terms, the standard inheritance tax rate is 40% of anything in your estate over your threshold of £325,000. You may benefit from other allowances however. Inheritance tax planning can be complicated, and understandably there is a lot of confusion among consumers. An aging population, combined with increasing house prices and asset values, means that families may be sitting on a large inheritance tax bill and not even know it!

In order to plan effectively, it is important to make decisions sooner rather than later. There are many different strategies to help mitigate inheritance tax and some of these must be considered over the long term. For example, we only have an annual 'gift allowance' of £3,000. If you want to make a financial gift of more than £3,000 to a family member, you'll need to live more than seven years after you've made the gift in order to potentially avoid inheritance tax.

Some people are reluctant to give up access to capital through gifting however, in which case the use of certain inheritance tax friendly investments, trusts, life policies or pension planning may be more appropriate. We each have different circumstances and objectives, so what works for you might not work for someone else. There is no "one size fits all" approach, which is why a conversation with a Financial Adviser is invaluable.

Indeed, intergenerational planning can be a juggling act – you need to ensure that you have enough money in the future to continue your lifestyle, whilst ensuring that your beneficiaries do not end up with a hefty tax bill. As Financial Advisers, we are able to build a lifetime cash flow model with our clients to work out whether intergenerational planning is a viable option and if so, how best to go about it.

By taking action now, you could make a real difference to your children and grandchildren's lives.


If you want to find out more, please do not hesitate to get in touch with our team for expert, personalised advice on this area.