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Intergenerational financial planning – keeping it in the family. Henny Dovland, Time Investments.

  • By Sue Whitbread

 Henny Dovland, inheritance tax expert and business development manager at TIME Investments talks through some of the considerations involved

As we live longer, it is quite typical for four generations to be alive and well in any one family. This means it is becoming increasingly important for advisers and planners to consider financial planning on an intergenerational rather than individual basis.

Inheritance Tax (IHT) is hefty – 40% of the total qualifying estate – yet our own research shows that over a third of consumers aged 55 and over who use an IFA for financial advice have not yet considered Inheritance Tax (IHT) planning.

Financial planners need to think about the services they provide to the family as a whole. Rather than focusing on the wealthiest generation in isolation, there will be opportunities to help all members of the family who will experience different financial challenges simultaneously.

The baby boomers are usually considered the wealthiest of today’s surviving family members. They are some of the last to enjoy the benefits of a final salary pension, while also likely owning one, or maybe multiple, houses. However, they are also among the first to experience long retirement and the careful financial management that comes with that.

Meanwhile, younger generations struggle with student debt, rising house prices, an evolving job market and an uncertain economic future – combined with receiving the greatest inheritance but at a much older age than previous generations.

Assessing retirement income

Of course, serious consideration needs to be given to how much income a client will require in retirement and how long this income needs to last. This is a difficult question for advisers but with an idea and some assumptions of inflation expectations, lifestyle and health, some indication can be achieved. Next, is to establish whether the client can reach that income target based on an assessment of assets.

Where there are surplus assets, now is the time to assess IHT planning. There are several tax-efficient ways to pass assets to descendants, but these have different constraints and obligations.

The easiest route may be to pass cash to family members. However, aside from the use of small and annual gift allowances, larger gifts will typically take seven years to fully fall outside of the taxable estate.

A more complex option, but with greater restraints on the recipients, is to set up a trust which is exempt from IHT. However, as with gifting, once the assets are in the trust, the individual loses control.

An alternative tax efficient option is investing in shares that qualify for Business Relief (BR) and holding them for more than two years.

To qualify for BR, the shares cannot be listed on a public stock exchange such as the FTSE 100. Instead they must be in either an AIM listed company or a private company that trades rather than invests. BR qualifying shares receive up to a 100% IHT exemption, depending on the stock, and the individual retains control. The shares can be held directly or form part of an ISA giving the investor added flexibility. However, these are investments and are not without risk.

Irrespective of whether gifts, trusts or BR are used, advice is of paramount importance to avoid costly mistakes and inefficiencies.

Home is where the heart is

How people deal with the family home is also an area where advisers and planners can add significant value. Passing the family home to the next generation is an enormous emotional (as well as financial) move, and ensuring this is done in the most effective way for all concerned is important. In such instances, advisers should make best use of the residence nil rate band (RNRB).

The nil rate band has been stuck at £325,000 for some time, meaning anyone with an estate exceeding that figure are potentially liable for IHT. Clearly this is an issue given today’s escalating house prices. In response, the government introduced the RNRB from April 2017 which allows home owners an additional £100,000 before they are subject to IHT. This will increase each year by £25,000 until 2020. Prior to 2017, a husband and wife or civil partners with an estate of £900,000 would have been subject to an IHT liability of £100,000 on second death. Thanks to the RNRB, that bill now falls to zero – provided the couple qualify.

We should note that only direct descendants qualify for RNRB. Married couples leaving their assets to each other may transfer the RNRB to the surviving spouse allowing them to use up to twice the tax free amounts available to a single individual.

Super savers

Flexible pensions are another tax efficient way of passing money down through the generations. If the pension scheme member dies before age 75, their nominated beneficiaries will not have to pay any tax on withdrawals, whether as an income or lump sum. If the pension member dies after age 75 pension assets become taxable, but only at the marginal rate of income tax of the recipient.

Meanwhile, ISA holdings still form part of the taxable estate for IHT purposes. A surviving spouse or civil partner can inherit ISA funds from their deceased partner or make an additional ISA subscription up to the value of their deceased partner’s ISA holdings. It is possible to invest ISA funds in AIM listed companies that can qualify for 100% IHT relief after two years of ownership.

We all know the saying ‘you can’t take it with you’ but the pot still needs to last until the end. Intergenerational planning is about striking a balance between providing for each of the individuals, with the right tax efficient income to cover different needs at various stages of their lives. The right advice at the optimum time is crucial in ensuring each generation can share in the family’s wealth both today and in the future.

Want to find out more?

If you would like to find out more about intergenerational planning and inheritance tax services available to your clients, please contact us on 020 7391 4747 or



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