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Intergenerational wealth management is the term used for families supporting each other throughout various phases of their life. It explores how families can collectively use their wealth to provide financial support for loved ones and protect it for the next generation.
How could this affect you?
‘Baby Boomers’ heading towards retirement are reported to be the wealthiest generation. Those born between 1946-1964 play a significant role in UK consumer spending. In the US, we see a similar trend, with expenditure continuing to grow amongst the over 65s – now accountable for almost 22% of US consumer spending.
Whilst they may have the luxury of increased disposable income – ready to enjoy frequent travel and take up new hobbies, they are faced with the challenges of supporting both adult children and elderly parents. From home deposits and university fees, combined with the pressure of care home fees, Baby Boomers can feel the financial burden. This generation are really having to consider their financial situation and plan ahead to support the wider family.
The average age of property purchasers has surpassed 50; these buyers hold substantial equity, making it more difficult for first time buyers entering the market. There is a real risk of ‘inheritocracy’, where individuals are becoming more dependent on family wealth when it comes to home ownership.
First time buyers
With the absence of the help to buy scheme, more first-time buyers are reliant on financial support from the bank of Mum and Dad.
Parents provide the highest level of financial support; however, research shows that siblings now outweigh grandparents when stepping up to provide gifting or loans to help young adults onto the housing ladder. Gifting should be approached with caution as it can trigger tax liabilities for the donor.
Investing early on behalf of children allows parents or relatives to potentially benefit from compound interest, which is the interest earned from savings, as well as the interest earned from the interest itself. This means that when the child turns 18, they could have access to a substantial sum to support them at university or in early adulthood.
Supporting elderly family members
As the life-expectancy rate increases, more adults are having to carefully consider their retirement age, with the possibility of living to 100 years old and requiring care in the future. Care home fees can be expensive, and it is important to plan ahead. Having a lasting Power of Attorney allows for an appointed individual to make decisions on your behalf, should you have an accident or be in a position where you cannot make your own decisions due to ‘lack of mental capacity’.
These conversations can be difficult to have with the family; it is important to discuss and understand each other’s wishes for the future.
Cost of IHT
Over the next 20 years, we will experience “The Great Wealth Transfer”, with Millennials benefitting most from the wealth of Baby Boomers. The transfer of wealth can trigger a sizable tax bill, and families should be aware of the impact this may have on relatives.
Inheritance tax is up to 40% on all assets above the nil-rate band of £325,000. For civil partners and married couples this can be up to £650,000.
Gifting has become an accessible option for couples, as there is no Inheritance Tax to pay on gifts between spouses or civil partners, so long as they live in the UK. Outside of couples, you can give gifts of money up to a total value of £3,000 each tax year – otherwise known as your annual exemption.
Supporting the family and protecting wealth for the future can require some serious planning, and we would recommend working with a Solicitor or Tax Adviser.
At EFG Harris Allday we invest on behalf of several families, from parents and children right through to supporting up to five generations of the family. Investor experience can vary; we support and educate clients throughout various stages of their investment journey, adapting portfolio growth and income objectives in line with the family’s changing personal circumstances.
If you would like to discuss your personal circumstances, please contact us at [email protected] to speak to an experienced Investment Manager.
Please note that EFG Harris Allday does not provide tax advice and you should seek such advice from your professional advisors as appropriate.
