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Passing on wealth – How are parents sharing their fortunes?

New data from Saga suggests that parents’ plans to pass on wealth are changing, with many choosing to give wealth to loved ones while they are still alive, often choosing to refinance assets to provide support.

According to the study, around one in four over-50s anticipate supporting their children through the cost-of-living crisis by dipping into their savings.

Saga found that almost two-thirds of parents believed that the current crisis would damage their children’s finances more than the pandemic that preceded it – with rising bills, lack of savings and increasing rent and mortgage payments of most concern.

This is understandable given that inflation has hit a 40-year high of nine per cent, energy bills are anticipated to rise by more than 50 per cent again by the end of the year and, rents are up 11 per cent year-on-year outside of London and 14 per cent in the capital.

A new approach to passing on wealth

Due to these concerns, Saga found that a quarter of the over-50s it surveyed were re-evaluating their inheritance plans, with nearly 10 per cent of savers already gifting money to family members during the Covid-19 pandemic.

A further 15 per cent say they will also gift money to their children due to the cost-of-living crisis. On average these gifts amount to nine per cent of their wealth.

Of course, any gifts made by parents must be within the £3,000 Inheritance Tax gift allowance that is available each year. This is only likely to be a consideration where the estate exceeds the current IHT thresholds, which for a married couple could be up to £1 million. 

If a gift is greater than the £3,000 gifting allowance, it could be considered a potentially exempt transfer as long as you live for at least seven years after it is made.

This is because it falls outside of an estate for inheritance tax purposes after this period. This works on a tapered scale so that gifts made six years before death would still benefit from a small amount of relief.

Asset rich

Saga’s study showed that while many parents wanted to gift money, they were asset rather than cash-rich, which meant they weren’t able to immediately help.

As a result, five per cent of parents aged over-50 are considering equity release, rising to 13 per cent for those aged over 80.

The main reason for equity release, according to Saga, is now to release funds to support family as a result of the cost-of-living crisis.

Equity release unlocks the value built up in your home, allowing you to access it in the form of tax-free cash, but it is not without risk, which is why it is important to seek independent financial advice before doing so.