Are We Seeing The End Of The ‘Bank Of Mum and Dad’?
Children hoping they will get financial help from their parents as they get older may find they’re disappointed, as more than one in 10 retirees are cutting back on gifting, according to research from wealth manager Quilter.
Rising financial pressures, such as the cost-of-living crisis, are prompting an increasing number of retirees to reduce the support they are prepared to give to younger generations, raising questions about how wealth will be passed down.
The Quilter Retirement Lifestyle Report found 13% of retirees plan to cut back on the amount they are gifting to children. It rises to 16% when you look at younger retirees with above-average incomes, and 15% for those with lower incomes. This research could show a sea-change in the way younger generations will be financially supported by their parents.
What amounts are typically passed on?
The average retiree currently spends more than £2,500 each year supporting younger family members, the survey of 5,001 retirees found. This is made up of £1,323 in gifts and £1,175 paid towards education.
Some retirees, especially those with higher disposable incomes, pay significantly more than this each year, with many exceeding the £3,000 annual gifting allowance. For example, younger retirees with higher incomes, gift an average of £4,836 to relatives, and pay £5,280 towards education each year.
Shaun Moore, tax and financial planning expert at Quilter, said: “Retirees provide a vital avenue of fifinancial support for younger generations, helping with everything from education to deposits for first homes. If the bank of mum and dad, or even the bank of gran and grandad, begins to close its doors, the ripple effects could be felt across the housing market, education system, and the wider economy.”
What happens if you gift more than the annual allowance?
If you breach the gifting annual allowance under the Inheritance Tax (IHT) rules, you won’t immediately trigger a tax charge, but if you die within seven years of the gift, then your estate could face an IHT charge, but this will depend on what your overall estate is worth and whether it will be subject to IHT at all.
Any gift above the annual allowance would then become part of the Potentially Exempt Transfer (PET) rules, where there is an inheritance tax charge that tapers down depending on how many years you survive the gift by. This creates complexity for the people who are left behind as your executors, who then need to determine whether gifts made were survived by more than seven years.
The gifting allowance of £3,000 has stayed the same in more than 40 years. If this figure had kept pace with inflation, it would currently be £12,000. Quilter is calling on the Government to uprate this figure to at least £9,000 to allow families to transfer wealth with greater confidence and flexibility. With the Autumn Budget happening on November 26, it remains to be seen whether any changes to this allowance, or any other aspect of IHT, are made.
Mr Moore said: “The rumour mill is already in overdrive as we near the Chancellor’s upcoming budget and has so far seen a potential lifetime cap on gifting, an extension to the period donors must live after making a gift before it falls outside of their estate for IHT purposes, and the potential for a further freeze on the nil rate band all debated.
“A modernised allowance would support financial planning, reduce reliance on the state and help unlock economic potential. With pensions soon falling within the IHT net, generating a considerable uplift in revenue, this reform would be a modest concession for meaningful economic gain. If the government’s goal is to foster a high-growth, investment-led economy, then reducing friction around intergenerational wealth transfer is not just aligned with that vision, it is essential to it.”
We can help you
If you want advice on how to pass your wealth to the next generation, whether through regular gifting or inheritance tax planning, then please contact us and we will do everything we can to assist you.
