Leaving an inheritance becomes less of a priority


A blank file in a filing cabinetLeaving a healthy lump sum and reducing the amount of any Inheritance Tax (IHT) your beneficiaries pay on your death, are often thought to be key financial priorities of older generations. However, research from Aviva shows these aims may no longer so important for many of us.

IHT is payable at a rate of 40% on estates valued in excess of £325,000 for an individual, or £650,000 for a couple. Often referred to as a ‘voluntary tax’, because of the many loopholes which can be used to avoid paying it, IHT still pulls in a significant amount of money each year for the Treasury.

Aviva’s latest Real Retirement Report has produced some interesting findings:

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  • Amongst the over 55’s only 7% say leaving an inheritance is their top financial priority
  • However, for older generations leaving an inheritance rises in important, with 18% of people aged over 85 saying it was their main financial priority
  • Nearly 25% of 55 – 64 year olds do not expect to leave any inheritance whatsoever
  • Of those people who do plan on leaving an inheritance, property is playing an ever increasing part
  • The tough economic times have led more people to make a loan to a family member instead of leaving an inheritance in later years. The figures show 25% of over 75’s have made a loan to a family member, the numbers drop only slightly for younger generations with 21%

The change in people’s attitudes seems to be driven by the simple necessity of making ends meet; according to Aviva the main priority of over 55’s is to meet their living costs. Despite these changing attitudes, older generations seem to be more willing to look at alternative ways of passing on their wealth. According to the report, 20% of over 55’s would consider giving a cash loan to a family member, 17% would consider investing jointly in property, whilst a further 20% would consider making regular gifts to help avoid IHT.

Perhaps surprisingly given current low Annuity rates, only 7% of over 55’s would consider taking the tax free lump sum from a pension.

Inheritances on the increase?

Despite less than 7% of over 55’s stating that leaving an inheritance is their main financial priority, many expect to leave more than their parents.

53% of over 55’s expect to leave more than their parents did and 37% plan to leave significantly more.

Property is playing an increasingly significant part, with two thirds of over 55’s planning to leave their family home to their beneficiaries when they die. Although, the slump in house prices has affected the value of property, with 16% of over 55’s seeing the value of their property fall.

Given the reliance of many people on property, to make up a large proportion of the wealth they intend to pass on to younger generations, it is vital that steps are taken to ensure it is not eroded by the costs of long term care.

Commenting on the report, Clive Bolton, managing director of Aviva’s At Retirement business, said: “It is not just the older generation who have seen their financial realities change, but also younger family members who often need support to access the property ladder or raise children of their own. For some over-55s the desire to leave an inheritance plays second fiddle to more urgent financial proprieties, and even those who are financially secure are often tempted to share their wealth during retirement rather than wait to leave an inheritance.”

“Many over-55s who bought their homes much earlier in life have benefited from growing house prices in the decades since and understandably hope their family will share the proceeds as part of their inheritance. Anyone who needs to call on their property wealth at an earlier point – either to support themselves or family members – can aim to downsize or take out inheritance protection with equity release plans to safeguard a fixed amount for their loved ones’ future use.”

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