Written by:
Tom Glanville
Chartered Financial Planner at Amber River Shipman Wealth
Inheritance Tax receipts for the year to March 2026 hit a record high of £8.5 billion, a 3.6% rise from the previous year. This figure is due to be boosted further from April 2027 when pension funds will be added to the estate for Inheritance Tax calculations.
If you add to that, the fact for many decades most Inheritance Tax planning has been centred around giving away assets and living 7 years (Potentially Exempt Transfers) or as one solicitor described it to me as “warm hand giving”, it is not surprising a frequent question is “how much money will I need to keep?”
Unfortunately, since the rules for Potentially Exempt Transfers were introduced in 1986, being able to answer that question is now even harder due to many clients’ concerns about potentially having to pay for care costs. Even if there is a good, guaranteed pension income, the average UK cost of residential or nursing care ranging from £68,000 to £80,000 upwards, mean many people feel compelled to retain more savings rather than give money away, than has been the case in the past.
In this generation, much of the growth in the Inheritance Tax receipts has been driven by the rise in property values, be it their own property or inheriting property from their parents. However, it may make sense to gift other assets to the next generation, but that is not always straight forward.
By way of an example let’s look at the “River Family”. Paul is in his early sixties and his wife Helen is a few years younger. They have 3 grown up children and currently have 4 grandchildren. Helen’s parents are still alive and live in their own modest bungalow, but are getting quite frail.
Paul inherited the family business, River Electronics, from his late father and has taken it from a small family business to being a nationally known business in their specialist area.
Paul and Helen have helped their children with deposits for houses over the years but Paul has always been wary of spoiling their children and feels they should make their own way in life, like he did.
However, the recent changes to Business Property Relief, and the changes next year for pensions to be included within an estate, are making him question himself. He is wondering if he falls into the category alluded to by Roy Jenkins when he said “Inheritance tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”.
“Inheritance tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue” - Roy Jenkins
Paul and Helen have substantial assets they have built up outside of the business, in which they still own most of the shares. What will happen to the firm is a concern to Paul. None of their children are involved in the business, nor do they wish to be. Toby, the husband of their youngest daughter, Joanna, has expressed an interest in the past, but Paul and Helen have never really taken to him.
Whilst Paul and Helen enjoy good health, although there is a family history of arthritis, they have seen how Helen’s parents, Richard and Carol, are struggling lately. As they have limited assets, other than their bungalow, Paul and Helen think they may well have to fund care for them in the near future. So, Paul is worried that he and Helen should retain savings to possibly fund care for Richard and Carol and possibly themselves in the future. But how much should that be?
In addition, Sally, Joanna’s daughter who is 6 years old, is really struggling at school. Paul and Helen are seriously thinking of suggesting to Joanna that they pay for her to go to a private school. Based on her age that could be for 12 years. Paul and Helen have always said they wish to treat their children fairly and equally, so what about the other 3 grandchildren? How much would it cost to fund private education for all 4? Or what if there were more grandchildren in the future? A friend of Paul’s had mentioned that he had set up an education trust for his grandchildren, but Paul has no idea how that works.
On the theme of treating their children equally, David who is their eldest, is not married and has no children, so should they give him an amount to compensate him if they do fund private education for the grandchildren?
Paul is very frustrated that in his business life he has always been decisive and as a result built up a substantial business, but all the above questions have left him second guessing himself as to what they should do.
Financial planners do not have a magic wand, but rather strangely, having lots of unanswered questions like these make our job easier. The hardest meetings are where a client does not know what they want to achieve other than their money to grow. Imagine going to an architect to have your new home designed and when asked if you want a house or a bungalow, you say “I don’t know.”
Life Landscaping as we call it, takes a client’s objectives and questions and formulates them into a plan. In order to put the plan together for someone like Paul and Helen an interactive cashflow plan would be invaluable. This allows for the “what ifs” What does our retirement plan look like if we fund Richard and Carol’s care costs from tomorrow and we set up an education trust for our grandchildren?
Perhaps intergenerational financial planning is just all about the ‘what ifs?’
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Amber River Shipman Wealth
Our team at Amber River Shipman Wealth includes Chartered Financial Planners who look after clients across Southern England.
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