June 2022
Intergenerational Planning
It is estimated that a recipient of an inheritance is now in their early 60’s and receives around £300,000.
The Government, however, expect to receive around £5.4 billion in tax on estates above their allowance.
This raises three real questions:
- Why are so many people not bothering to take advice to reduce the size of the tax bill on their death.
- What are people in their 60’s doing with a large inheritance, which for many will be considerably more than £300,000.
- Why are people not spending or gifting more during their lifetime.
The answers to all three questions will be varied, just as our individual circumstances are. However, it is very clear that the bank of mum and dad is now in strong demand. Not only house deposits, but often private education, nursery fees and general living.
Houses today cost around eight times the average salary, when they used to be around four times.
It is true that interest rates are now considerably less. But after many years of being very low, they are expected to increase as inflation hits 9% and the base rate goes up to try and slow future increases.
Widening the gap
The Sunday Times rich list has just been published. It is amazing to see just how many people are seeing their wealth grow really fast, thus widening the gap between those that have and those that do not.
That said, we had someone out to fix our lack of hot water, and he said that he was very busy and that more people appear to be continuing to spend a lot on their home improvements. Something I concur with having seen clients withdraw funds over the last three years.
For many, their wealth is mainly their home and their pensions. Others have investments in ISA’s, unit trusts and bonds, as well as direct share holdings.
The idea of using these investments at this time for many is worrying. Just look at the stock exchange data published on 22nd May for the last 12 months:
Hang Seng down 30% DOW down 15%
NASDAQ down 29% CIAC down 15%
S & P 500 down 19% DAX down 14%
FTSE 250 down 18%
For those investing in alternatives, BITCOIN is down a whopping 57%, and of the FAANG (Facebook, Apple, Amazon, Netflix and Google) Apple has done best but is down 18% and Netflix the worse down 69%.
Some Financial Companies have seen shares slide with Hargreaves Lansdown down 49%, Virgin Money down 35%, Barclays down 30% and St James Place down 29%. Other family favourites have been hit with Coca Cola down 39% and Ocado down 64%.
The world Stock Markets have really taken a tumble from their peaks in the last 12 months, which have affected diversified portfolios.
With inflation hitting 9% and the next move expected to be upwards, and an average pay increase being just 2.3%, I think Intergenerational Planning will become more focussed at an earlier stage.
For most we know Inheritance Tax is optional, and that the seven year, two years and now one day rules mean planning is rarely too late.
The Government want wealth to cascade down through the generations, and probably the sooner the better, as it gets spent quicker which helps the economy.
