Reflecting on today’s Budget and the implications for planning, Madeleine Beresford, Partner in the Private Client team at TWM Solicitors, says:
Beresford said: “Older people rely on dividend and savings income far more than younger households. Increasing tax on both will erode the surplus income many grandparents currently use to support their children and grandchildren — support that younger families increasingly depend on to get onto the property ladder.”
TWM explains that the extra tax on savings will cost households around £500 million a year, while the higher tax on dividend income is expected to cost a further £1.3 billion annually.
“These changes risk shrinking the pool of income retirees can safely give away. Families have come to rely heavily on grandparents’ help with deposits, childcare and everyday bills. If that surplus income is taxed more heavily, many older people simply won’t have the same capacity to pass money down without compromising their own standard of living.”
“We have seen a huge rise in families using gifts out of surplus income to reduce inheritance tax and give younger relatives a financial boost. But these tax rises make it much harder for retirees to keep doing that. If their dividend and savings income is squeezed, those gifts will fall — at the exact moment younger generations need more support than ever.”
- The value of ‘gifts out of surplus income’ jumped 177% to £144m in 2023/24 as older people used surplus pension, dividend and investment income to help younger relatives*
- These gifts are immediately exempt from inheritance tax and are used heavily by retirees to support children and grandchildren
- Higher taxes on income will reduce the amount of “surplus” retirees have available to gift
- Younger households increasingly rely on parental and grandparental support as house prices and living costs rise
*Source: HMRC, Inheritance Tax Statistics, FY 2023/24
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