Over-50s shift inheritance plans to support family during pandemic

A significant number of over-50s have changed their inheritance plans to support loved ones through the coronavirus pandemic, a major study has revealed.

The research, published by over-50s financial services provider Saga, shows that 37 per cent of parents and grandparents would rather see their heirs benefit from their wealth now, than after they’re gone.

A further two in 10 said the pandemic has “caused them to adopt a more flexible approach to inheritance plans”. For instance, four per cent said they would be considering gifting a portion of their inheritance now, rather than leaving it in their Will.

Around seven per cent of respondents, meanwhile, had already made gifts out of their estate equal to around 15 per cent of their wealth.

Commenting on the report, Alex Edmans, Head of Equity Release at Saga Equity Release Advice Services, said: “The pandemic has brought about a whole host of new financial pressures for families. It’s only natural then, for parents who may be more secure than their children to want to offer their support through these challenging times.

“Many are now increasingly turning to their own savings, thinking more flexibly about their inheritance plans or considering benefitting for the equity in their home.

“However, it’s vitally important that parents seek advice on the best route forward before committing to accessing their pensions early, gift money or using equity release – what is right for one family may not be appropriate for everyone.”

Jeffery Cohen, a leading expert in inheritance tax and succession planning at Mackrell. Solicitors has also commented that in the last six months or so since lockdown began he has had a significant increase in the number of enquiries from people wishing to look more carefully at their succession plans and restructuring of their estates. It is likely that this trend will continue for the foreseeable future.

While gifting can be a tax-efficient approach to inheritance planning, there are potential pitfalls to avoid. Here’s a taste of what you need to know:

  • Exempted gifts

An individual can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of their estate. This is known as the ‘annual exemption’ and can be carried forward to the next year, but only for one year.

  • Spouses and civil partners

There is no Inheritance Tax to pay on gifts between spouses or civil partners.

  • The seven-year rule

If a person makes a gift, provided they survive seven years and do not derive any benefit directly or indirectly from that gift, then that becomes free of tax after the seven years. This is known as a potentially exempt transfer. If a person survives a minimum period of three years, depending on the value of the gift then a sliding scale, known as taper relief, may also apply. Care must be taken with regard to making any such gifts and any gift made should always be in consultation with expert advice. Any gifts in which you fail to survive seven years could be charged at the rate of 40 per cent. Sometimes if a gift is made into a trust this could also attract tax at the rate of 20 per cent.

There are many more exemptions and tax reliefs that can be used, for example, business relief where a person holds assets in a trading company or agricultural land. All these matters need to be discussed in full and in detail with an appropriate adviser. If this is done this could avoid many inheritance tax pitfalls and avoid substantial cost to your estate.

For more help and advice on matters relating to Wills, inheritance and estate planning, contact our expert team today.

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Natalie Payne
Natalie is a Private Client Solicitor at Mackrell.Solicitors and is based in their London office. Natalie has a very hands on approach with her clients and guides them through every step when looking after their personal affairs and/or those of their friends and family.