The complexity around inheritance tax rules is well known. Even experts in the industry need to revisit the details sometimes.
A substantial part of my time as a financial planner has been spent helping clients manage how to pass on wealth to their loved ones, either during their lifetime or after death.
As a millennial, this concerns me as much as the complexity. My company recently commissioned a survey of 2,000 people from across the country. One question saw respondents asked how much they saved per month, excluding their pension. The most popular answer among 25 to 34 year-olds? Absolutely nothing.
As a financial planner, this horrifies me. But as a millennial, I can sympathise.
There will be some people who say the fact this generation is saving nothing shows millennials might need to have the value of delayed gratification instilled in them. And while I am sure, in some cases, this could be true, I mostly disagree.
Younger generations are so stretched month to month by unavoidable costs like rent that it becomes near impossible to put anything in the rainy day fund, let alone the deposit-for-a-house fund like baby-boomers before.
There is unlikely to be a silver bullet that will fix the financial woes millennials have to contend with.
However, one way to alleviate some of the pain is to make sure wealth cascades to younger generations sooner in their life, if possible. This involves making some simple – and bold – changes to IHT and the gifting allowance, in particular.
Doing so could go some way to helping younger people meet the challenges of ever-increasing house prices, upsurges in the cost of childcare and massive rises in university fees.
There are some people that view receiving an inheritance as the preserve of the wealthy. However, a recent piece of research by the Office for National Statistics found inheritances received by those in the lowest wealth quintile made up 44 per cent of their net total wealth.
Yet the average age at which people can get assistance from older loved ones is getting later and later, with those aged 55 to 64 being the most likely to receive an inheritance and also on average set to receive the largest amounts. This is far too late in life for most.
Government policy currently encourages people to pass on wealth on death, rather than gift during their lifetime.
The current gifting allowance of £3,000 has remained unchanged since 1981, which seems grossly unfair as, had the annual allowance tracked inflation, it would have been permissible to gift £10,932.20 in the 2017 tax year.
Increasing the amount that can be gifted could help change the psychology around lifetime gifting and make it more palatable to older generations.
While governmental change is essential, we must remember that not everyone’s estate is the same and therefore it is important to look at all options: protecting wealth, passing it on or spending it.
A combination of strategies may work and there is no one-size-fits-all solution, making the role of the adviser so crucial.
Gabriela Strug is financial planner at Quilter Private Client Advisers