Tackling the inheritance taboo

Blog Inheritance Tax Family

There are some things that are easy to talk about as a family. But there are other topics that are much more difficult to broach.

Money is high up on the taboo list, with research over the years showing that family members find it the most difficult subject to bring up with each other.

And of all the different money topics, inheritance is one of the most awkward to discuss. It’s easy to see why – no one wants to talk to their loved ones about dying, and the implications it might cause. But as difficult of a conversation as it might be to have, the consequences of not doing discussing inheritance plans could prove worse in the long run.

Avoiding the subject

According to September 2023 research by Charles Stanley, only 64% of us have discussed our wealth plan with family members. What’s more, 14% of us don’t intend to ever have that conversation.

In these cases, it seems more likely the topic of money will only be talked about when a family member passes away and their inheritance plans are disclosed. This could lead to surprises and even family squabbles – for example, if there’s a difference between the contents of the Will and expectations.

Even more worryingly, it could leave beneficiaries with the unexpected shock of an inheritance tax bill. If the deceased’s estate is above their personal threshold, 40% of everything above it could be taxed. And it would typically fall on the beneficiaries to find the money to settle this bill.

Inheritance tax is a growing problem in the UK: figures show some £7.1 billion was collected in the 2023/23 tax year – a 16% increase on the year before. In November 2022, the government took the decision to freeze current thresholds until 2028, which means even more families are likely to be affected over the coming years.

Sharing experiences and goals

Inheritance tax isn’t the only reason to start being more open with loved ones about financial matters. Talking about money matters can help you all better understand where each of you are – and ways you might be able to support each other.

For example, if you have adult children who are struggling to get on the property ladder, talking about the options to support them – and sharing your own experiences of saving money – could help steer them in the right direction.

You can also use any harsher life lessons to help the younger generations of your family avoid making mistakes. For example, you might regret not paying enough into a pension earlier in life. This is something you could admit to family members, so they consider what they’re doing for their future.

Another compelling reason to talk about your wealth is to clarify inaccurate assumptions that might affect their financial future. For example, June 2023 research by Hargreaves Lansdown found a third of people in the UK are banking on receiving an inheritance to fund their retirement.

Perhaps you can, one day, leave your loved ones a healthy inheritance to support their future. But you might also want to have a conversation about expectations now.

Plan to keep more of your wealth

If you can each develop a better understanding of everyone else’s financial situation and goals, you might also be able to make meaningful plans to support each other – with the help of an adviser. It’s called intergenerational financial planning, and it allows you to come together to make individual financial plans that don’t just benefit you, but other family members.

This is also an effective way of planning for any inheritance tax liability you have. There are different ways you could reduce or even eliminate a potential inheritance tax problem which can include making financial gifts to loved ones.

The rules around gifting to family members can be more complicated than you might think. And the later you leave it to make gifts, the greater the risk of you still having an inheritance tax liability. For this reason, it could pay off to speak to a financial adviser now.

By opening up to your loved ones about your finances, and encouraging them to do the same, you could make meaningful plans that suit everybody. It can leave you all feeling more confident about the future and bring you even closer together as a family.

If you want to speak a member of the wealth management team about inheritance tax planning, get in touch.

Posted in Blog.