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Parents keen to keep inheritance in the family amid divorce stats

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Written by: Paloma Kubiak
05/05/2017
Parents want to keep money within the family upon their death and they also want to control how their children spend an inheritance, research shows.

With rising property prices and pension wealth, the baby boomer generation have significant assets to pass on after death, however 77% of over 55s said they want some control of how their legacy is spent by their heirs.

Research from Prudential found a quarter of parents are concerned that the inheritance could end up going to children’s spouses in the event of divorce, while a third said they don’t want the wealth to be squandered by their children. A further third said they also wanted their grandchildren to benefit.

As a result parents are specifying exactly what they want their legacy to be used for, and 13% have already sought or intend to seek advice to help ensure the inheritance is used wisely. One in 10 parents said they want to stipulate that their children must receive professional advice once they’ve received the inheritance.

The concern comes as figures reveal the average inheritance tax (IHT) bill in the UK stands at nearly £175,000. In 2012/13 less than 18,000 estates had an IHT bill but government estimates reveal there will be 41,000 taxpaying estates in 2015/16 and that IHT receipts will hit £6.2bn by 2021/22.

Yet Prudential research found that less than a fifth of people are actually taking any action to reduce their loved one’s tax bill. Fewer than one in 10 are seeking financial advice, making gifts to family members (6%) and/or setting up trusts (4%).

Les Cameron, tax expert at Prudential, said: “Reducing inheritance tax bills is relatively straightforward. People need to strike the right balance between giving their wealth away during their lifetime to reduce the size of their estate, and maintaining some form of control after their death over who can access it and when.

“With two in five marriages ending in divorce, it is easy to understand why the problem of keeping wealth within their family is a growing concern for the bank of mum and dad when they’re planning to leave money to children and grandchildren.”

Cameron said to help ensure efficient IHT planning, obtaining financial and legal advice “should be money well spent”.

Inheritance tax rules

Estates are currently taxed at 40% for anything above the £325,000 limit for single people, or £650,000 for married couples or civil partners. From 5 April this year an additional £100,000 per person was introduced to offset the value of the family home, taking the allowance for single people to £425,000 and £850,000 for couples. The additional allowance will rise in stages to £175,000 by 2020/21 taking the limit to £1m for a couple.

See YourMoney.com’s Five little known points about the new property and death tax charge for more information on the new residence nil-rate band.

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