Transferring wealth

Transferring wealth

Around £355bn is expected to be transferred to the next generation of families in the UK over the next 25 years. The Silent Generation and Baby Boomers currently hold the largest proportion of this wealth and while Generation X may be the primary beneficiaries, in time this wealth will pass to Millennials.

For families, the desire to transfer their wealth tax-efficiently across generations is a key driver for seeking financial advice. Conversations about money and assets within families can be awkward and difficult to address. A financial adviser can be helpful when communicating between generations because they can act as a neutral mediator and help navigate the emotional terrain around inheritance planning.

An open conversation with professional guidance will ensure that all the right questions are asked and that both generations are comfortable with their situation and the broader plan. This might include issues like the older generation choosing to maintain control of their wealth until they feel the time is ‘right’, assessing the impact receipts of large lump sums may have on beneficiaries, as well as the associated tax implications of wealth transfers, including Inheritance Tax (IHT). The beneficiaries in the generations below may themselves have anxieties around the complexities of inheritance and how to manage their own financial planning, especially if they in turn intend to pass this onto the generation below when the time is right.

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Below are some of the options that can be used for transferring wealth efficiently between generations, and on which a financial adviser would be able to provide support and guidance.


Individuals can gift up to £3,000 each tax year, this is known as your ‘annual exemption’. The gifted amount is treated as being outside of your estate immediately and as such will not be factored in when calculating any potential IHT liability. There are also additional exemptions for gifts out of normal expenditure and further exemptions relating to gifts to charity or for the marriage of a family member.


Investments within a pension can accumulate free of income or capital gains taxes, and they also remain outside of a person’s estate for IHT purposes. This means they are one of the most effective ways to manage any intergenerational wealth transfer. Keeping a pension intact and drawing upon other assets in retirement to fund expenditure allows for a valuable asset to be passed on tax-efficiently. For this reason, it is necessary to regularly review your nominated beneficiaries in order to ensure that the nomination reflects your wishes.

For reference, should the owner of the pension fund die before age 75, under current legislation the fund will retain its tax-efficient status and the beneficiaries will also be able to draw upon the pot ‘tax-free’.  However, should the owner of the fund die after age 75, the pension fund will still retain its tax-efficient status, although withdrawals made to the beneficiary will be taxed at their marginal rate of Income Tax.

Business Relief

Business Relief is designed to try and ensure that family businesses are not unduly disadvantaged by having to pay an IHT bill.

Business Relief of 100% is available on shareholdings of any size in a business or shares in an unlisted company, as well as AIM shares and interests in unincorporated businesses, such as sole traders and partnerships. Business Relief of 50% is available for shares controlling more than 50% of the voting rights in a fully-listed company and for land, buildings, plant or machinery used mainly for the purpose of a business controlled by the owner.

It is worth noting that business relief is only available if the donor owned the property for at least two years before death and will not apply to assets that form part of a non-trading business (i.e., those that consist wholly or mainly of dealing in stocks or shares, land or buildings, or making or holding investments.)

Life assurance  

For those where an IHT liability has been identified, taking out a life assurance policy could mean that your estate passes onto your loved ones intact. It’s important to note that a life assurance policy does not reduce your liability to IHT, but rather provides your beneficiaries with a prompt and efficient way to meet the bill. The policy will pay a lump sum to your beneficiaries which can then be used to pay the IHT on the estate.

When considering this option, the individual would need a comprehensive understanding of the value of their estate, the potential liability, and how this may change over time. Any policy taken out would also need to be written into Trust. If not, the proceeds could form part of their estate and increase the IHT liability.

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Wider Options for Transferring Wealth

There are further areas of IHT planning that could be considered which may involve the use of legal structures such as Trusts and Family Investment Companies, along with investment options which may qualify for Business Relief such as Enterprise Investment Schemes (EIS) and Seed-Enterprise Investment Schemes (SEIS).

Considering how wealth may be passed efficiently to the next generation is a key pillar of good financial advice and should be carried out with care and professional guidance. Expert advice, education across the generations, engaging all relevant parties and robust long-term planning are all key to ensuring the ‘Great Wealth Transfer’ is undertaken successfully.

If you would like some assistance in transferring wealth between generations, please get in touch.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.