The inheritance tax timebomb: Half of HNWs plan to leave houses to children

by | May 20, 2024

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Millennials are on course for an inheritance tax bombshell, as new research from the wealth manager Charles Stanley reveals that around half of high net worth (HNW) individuals plan to pass on properties to their offspring, leaving them exposed to inheritance and capital gains taxes.

Of the 96% of respondents who plan to leave an inheritance to their children, 46% plan to leave their children a house as part of their inheritance according to the research. Just under a third (30%) plan to leave other significant assets to their children and as many as a fifth (19%) plan to leave a business.

The survey also found that liquid assets remain the preferred form of wealth transfer for HNWs, with 76% planning to leave inheritance to their children in the form of money. In addition to this, parents with children aged 30-39, have already gifted them an average of £50,973.

 
 

But property is becoming more central to wealth transfer plans, with the over 50s holding 78% of all of the UK’s privately held housing wealth.* With the inheritance tax (IHT) threshold being left unchanged until 2028, more families are becoming liable to IHT as house prices continue to rise. While ONS figures show that the average house price in the UK in January was £288,000, the figure rises to £508,000 for London – well above the £500,000 individual inheritance tax threshold (including the residence nil-rate-band). The Office for Budget Responsibility forecasts that the share of deaths resulting in the payment of inheritance tax will rise to 6.3% by 2028–29, the highest level since the 1970s.*

Children are not the sole beneficiaries of inheritances – 85% of respondents plan to leave an inheritance to their grandchildren. Of this, 78% plan to leave money, 14% a house, 11% other significant assets, and 9% a business. Leaving money to grandchildren cuts out a round of IHT and so stops an estate’s value being diminished as capital is passed across generations.

The research demonstrates that leaving an inheritance is seen as a milestone achievement by many HNWs. Three in ten (29%) say that their inheritance will be their legacy and a third (32%) say that leaving one is a big part of their financial plan. More than one in ten respondents (13%) say they will downsize in order to leave more of an inheritance. 15% plan to leave an early inheritance so that they can mitigate the tax bill.

 
 

Harry Bell, Director of Financial Planning at Charles Stanley, comments: “Inheritance tax planning is increasingly important for HNWs as they look to leave their families in a comfortable financial position and make their hard-earned wealth count. With the home having become such an integral part of the modern financial portfolio as well as one of the first associations we make when we think of our family, it’s no wonder people are passing these on to their children and grandchildren in such high numbers.

“While many will have financial plans in place when it comes to their inheritance and passing on assets to loved ones, it’s critical that people take stock of the nuances and traps when it comes to wealth transfer. A stat from our research which ought to ring alarm bells is that 40% of those with children have not, or do not have financial conversations with them – opening up the chance for family disputes or other financial consequences when it comes to inheritance.  It’s critical that home-owners seek the correct source of advice when it comes to setting up an appropriate financial plan which works for them and their families.”

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