Three-quarters of people think their children will be worse off in the future than they are now, research shows.
But despite these fears among 74 percent of parents, only 14 percent of respondents said they regularly discussed money and inheritances with their children, according to a survey by private bank Arbuthnot Latham.
And only a quarter, 26 percent, say they have taken steps to reduce the amount of inheritance tax their children will have to pay when they die.
Worrisome future: Most parents think their children won’t be able to afford the same lifestyle they do
Rachel Wyatt, estate planner at Arbuthnot Latham, said: ‘Many people feel uncomfortable talking about inheritance in detail, and too often it is not talked about. The danger of this approach is that no one achieves the desired results.’
“Conversations about passing on wealth are crucial to achieving the desired outcome.”
She added: ‘We always encourage customers to have open and honest conversations with their children and grandchildren. This ensures that wishes are followed and ensures that future generations can also plan their own financial future.’
It is increasingly likely that younger people will not be able to match their parents’ financial quality of life.
According to Arbuthnot Latham, the research questions the “age-old perception that younger generations will always be better off than their parents because of long-standing trends of economic growth and improving living standards.”
In recent decades, home prices have outpaced wage growth, while the cost of living has continued to rise. Recent data shows that a third of first-time homebuyers rely on their parents’ help to get onto the property ladder.
As a result, fewer young people are buying a home, let alone at the same age as when their parents were able to, while a greater number of people are living at home with their parents.
At the 2021 census, a whopping 11.6 percent of people aged 30 to 34 lived at home, up from 8.6 percent a decade earlier.
However, as young people become increasingly dependent on their parents’ money, it is crucial for those planning to leave a legacy to have a plan in place to ensure their children can make the most of it .
Wyatt said: ‘Without proper estate planning, your beneficiaries are left in limbo and this can result in relationship tension due to uncertainty and an inability for them to plan efficiently. An estate plan gives you the tools to have a good conversation.
‘Whether it’s making lifetime gifts or thinking about how your estate will pass to your beneficiaries on death, there are steps you can take to limit IHT. The right solution will depend on your interest in lifelong gift giving and the control you want to maintain over that gift.”
How can you reduce inheritance taxes?
Reducing the impact of inheritance taxes can provide a huge boost to the amount you can leave to your loved ones. There are a number of ways to approach this.
If you want to help your children as quickly as possible, you can use donations. You are entitled to an annual gift allowance of £3,000, as well as £5,000 for a child if they get married or enter into a civil partnership.
You can also make donations each tax year up to an amount of € 250 per person, provided that you have not used any other benefit for it.
It is important to know that donations above these allowances are only tax-free if you are still alive seven years after the donation.
If you don’t, you will usually have to pay inheritance tax on a sliding scale, depending on the time that has passed between the donation and your death.
Wyatt says: ‘At a 40 per cent tax rate, HMRC can be the largest beneficiary of your estate, making IHT mitigation important for many when making those plans.’
> Read our full guide to how inheritance tax works
Defined contribution pensions, such as a workplace scheme or a self-invested personal pension (Sipp), are outside your estate and are subject to inheritance tax.
This means they can be a tax-efficient way to pass on wealth, although there have been attempts to change the rules and bring pensions into the IHT net.
If someone under the age of 75 dies, a pension can be inherited tax-free.
If a person dies after age 75, income tax must be paid on any withdrawals made by the beneficiaries. This means they can be taxed at 20 percent, 40 percent or 45 percent.
Pensions are one of the most efficient ways to save, as contributions benefit from income tax relief up to the annual pension benefit of £60,000. This is reduced for very high incomes. Read our guide to how pensions work.
In most cases, the tax credit at the basic rate of 25 percent is automatically added to the premiums and the tax credit can be reclaimed at a higher rate. Those with work arrangements that offer a pension wage sacrifice will automatically receive full relief and will also not have to pay national insurance contributions.
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