Intergenerational Planning Synopsis

Donald Manning looks at the opportunities for advisers with their clients' families to plan for their future and pass on wealth.

Intergenerational wealth transfers according to research carried out by Brooks Macdonald, will see around £327 billion of assets passed to the next generation over the next 10 years. Families will need to obtain the correct advice regarding wealth transfers, to make sure that the transition of wealth is done as tax efficiently as possible. Over the next 15 years, research has shown that the financially mature and stress-free retirees, will be overtaken by ‘complex families, complex finances’ retirees, as the largest group of retirees. It may require a different advice process model to be able to deal with their retirement journeys.*

There are annual exemptions and Potential Exempt Transfer rules which can help to reduce or mitigate IHT on intergenerational transfers. Advisers can help clients construct their income stream tax efficiently and help document their expenditure, to make the most of this exemption. 

Passing down wealth

When it comes to passing wealth on to the next generation, using pension and ISA allowances can provide a tax-efficient vehicle for the gifted assets. Third-party payments can be made by the donor utilising both the annual allowance and carry forward rules. With the use of Junior ISA, the donor knows that access cannot be achieved before the child becomes 18. Investment control is available at age 16, which gives a good opportunity for advisers to engage with the child to discuss investments and plans for the ISA funds.

Partner privileges

For married couples and civil partners, on death, the survivor can take advantage of Additional Permitted Subscription, (APS). Original ISA assets do not automatically pass to a spouse or civil partner on death, as they may have been passed to another via the Will. The adviser can assist in making sure that the allowance in these circumstances is utilised as tax efficiently as possible. Where APS is not available for ISA investors and they want to pass those assets on as tax efficiently as possible, it will require the use of AIM investments. Where qualifying investments are held for at least 2 years at the date of death, they are exempt from IHT. Clearly AIM investments by their very nature, bring a further level of risk and therefore it is important to make sure clients understand the risks associated with such investments.

Intergenerational planning can be complex and take into account multiple allowances and rules. Advisers are best placed to steer clients and their beneficiaries through these to make sure that assets are transferred as tax efficiently as possible. 

Reporting to help you and your clients 

At FundsNetwork we have a wide range of reporting tools to help in your planning with clients. Our ‘Pension Summary’ report can identify current pension withdrawals to see if there is scope to make the most of gifts out of normal income rules. It will also identify if a nomination has been made and identify who current beneficiaries are with percentages.

The ‘ISA Contribution’ report can help identify those clients who have not used their full annual ISA allowance in the current year, as well as identify if their OIEC investments could benefit from Bed & ISA. It will also identify those clients who do not have an ISA with FundsNetwork. 

FundsNetwork weekly breakfast briefing 

Join Donald Manning each week at our weekly breakfast briefings, where he uncovers what’s behind the headlines to help you understand the implications to you, your business and your clients.

If you would like to find out more email us at adviser@emails-fundsnetwork.co.uk

* Source: Money Marketing, 19 November 2020. This research was conducted by Canada Life in partnership with Trajectory.

We’re committed to providing you with technical support to help you keep pace with the latest rules and legislation. Our range of practitioner material is designed to help you keep on top of all aspects of retirement planning. Themes covered include death benefits, pensions and divorce, the State Pension, pension withdrawals taxation and much more.

Visit our Technical matters hub

Important information:

This is for investment professionals only and should not be relied upon by private investors. Please note that with pension products your client will not be able to withdraw their money until they reach age 55. Tax treatment depends on individual circumstances and all tax rules may change in the future. The value of investments and the income from them can go down as well as up so your client may get back less than they invest. Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, FundsNetwork™, their logos and F symbol are trademarks of FIL Limited. UKM0621/36051A/SSO/NA