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Telegraph
18-05-2025
- Business
- Telegraph
Why more grandparents are tearing up the inheritance rulebook
Are you changing your inheritance tax planning? Let us know at money@ Grandparents are tearing up the inheritance rulebook, choosing to skip a generation and pass wealth straight to their grandchildren. 'People are living longer and dying later, their children are further on in life and usually broadly financially sorted, so don't actually need the money,' says Ian Dyall, of the wealth manager Evelyn. 'Meanwhile, their grandchildren have university debt, are trying to get on the housing ladder and don't have the same pensions. Giving them a financial start in life has more of an impact.' One in four people over 50 have given substantial cash gifts to family in the last five years, according to the SunLife Life Well Spent report, and 36pc of over 70s. The average amount given is £20,021. And while children are still the beneficiaries of many gifts, grandchildren are increasingly feeling the benefits of the great wealth transfer. Some 22pc of over 50s, and 34pc of over 70s, have given large cash gifts to their grandchildren. These included money for a special occasion such as a birthday or Christmas (40pc), to put towards tuition fees (38pc) or to help after the birth of a baby (27pc). Financial gifts are expected to further snowball after the Chancellor Rachel Reeves announced in her maiden Budget that pensions will be liable for inheritance tax from April 2027. Savers who had previously planned to leave their pots untouched to pass on to loved ones are now having to consider the best way to spend their money. 'My children don't need any gifts' Blair Hilton is building a nest egg for each of his five grandchildren. Hilton, 80, who lives in Thornby, near Liverpool, has a monthly income of about £4,000 after tax from his state pension and a defined benefit pension from his career as a civil servant. He has set up a bare trust for each of his grandchildren, aged one to 14, and splits any excess money each month, after his bills are paid, between them. 'I didn't discuss it with my children before setting up the trusts, the idea came up when I was talking to my financial adviser, ' says Hilton. 'But when I mentioned it to my children, they seemed happy with the arrangement and thought it was sensible.' His children will inherit an equal share of his house, worth about £400,000. 'They have their own homes and are working, so they're not in need of any gifts,' he says. 'And while the money is going to my grandchildren, I still expect it to benefit my children because it will go towards university fees that they might otherwise have had to pay.' Individuals can give away up to £3,000 a year, and this falls immediately outside an estate for inheritance tax purposes, plus as many gifts of up to £250 as you like, as long as they go to people who do not benefit from your main gifting allowance. But larger sums are subject to inheritance tax unless the donor lives for seven years after making the gift. Under the surplus income rule, you can give away excess cash inheritance tax-free as long as it does not impact your standard of living. This must be regular income from certain sources such as employment, rent, pensions or dividends (it can't come from savings) – the donor must keep good records and show a regular pattern of gifts. But it is an underused strategy – only 430 families claimed this exemption in 2022-23, according to official figures. 'When you look at the inheritance tax rules, it is hard to give money away when you don't know how long you will live, so this seemed like a far better option,' says Hilton. He is single and wants to reduce his wealth so that his family are not left with a large inheritance tax bill after he dies. He has made gifts to family in the past 10 years, but is conscious of the seven-year rule. 'Tax efficiency is the main reason I'm doing it. In the past I have given money away, but it is hard when you don't know how long you will live,' he says. 'I want to get my assets down to the £325,000 threshold, but the amount you can give away per year is fairly limited.' Hilton invests the money for his grandchildren through his wealth manager, Bestinvest, in the Evelyn Growth Fund Clean, which invests in a portfolio of other funds with the aim of achieving long-term growth. Top holdings include Evenlode Global Income, Fundsmith Equity and Invesco Physical Gold ETC. It can also be more tax efficient to give money to grandchildren, says Chris Etherington, from the accountancy firm RSM. 'Parents who invest money for their children, other than through a junior Isa, are taxed on any gains above £100. This does not happen when you give money to a grandchild.' The best strategy depends on individual family circumstances. Etherington gave the example of one recent client with two children, one a high earner and one a lower earner. 'They will leave money to the lower earning child, but skip the high earner and instead pass money to his daughter,' he said. Far from creating a family drama, Dyall says that parents getting 'skipped over' are often happy for their own children to inherit. In some cases, parents who inherit money use a deed of variation to alter the will and redirect money to their own children. 'I don't need a lump sum' Cara Sayer has asked for any inheritance she might receive to be left to her daughter Holly, 17. 'I've got my own house, a business that is doing really well, and I'm building a nest egg with my pension – so I don't need a lump sum, ' said Sayer, 53, who founded the baby products company SnoozeShade. Sayer, who is single, is frustrated that it is harder for those who are not married to pass on money. Under the current rules, a married couple can potentially pass on £1m tax-free between them (as long as their estate is worth less than £2m) – but for a single person, that threshold is just £500,000. Sayer has asked her mother, Mary, 79, to consider Holly next time she updates her will. She hopes that Holly would use a lump sum to buy a first property. 'She already received a small inheritance and used it to buy her first car, so she would be under strict instructions about what it could be used for – and I like to think that if I did need the money, she would help me.' She adds: 'Ultimately it's up to my mum, and no one should be told what to do with their own money, but I think we should give more thought to the tradition of just passing everything straight to your children and whether it will actually benefit them as much as you think.' Avoiding a dispute But matters of inheritance can be fraught. Some 18pc of people have had a dispute within their family about inheritance, according to a survey of 2,000 adults by Canada Life. It found that 10pc of those aged 55 to 64 were relying on an inheritance from their parents to fund their own retirement. Yet under English law, individuals are free to leave their money to whoever they choose, says Dyall, meaning that some adult children could be left disappointed. 'We had one case where money had been left to a child under age 18 and the parent was named as trustee, and we were not convinced the money was being used for the child's benefit,' he recalls. Grandparents concerned about their wishes being carried out could find that giving money away during your lifetime tends to be less contentious, he adds. An alternative option is to write a discretionary trust, where you can provide a letter of wishes for the trustee, who can be a trusted friend or relative, or a professional, instructing them to prioritise whoever needs the money most. Dyall adds: 'My advice would be to have the conversation with your children first. Explain that it is not that you don't love them, but that the money could cause them potential tax problems and is likely to benefit the grandchildren more. 'If you don't want to have that talk, then consider writing a letter alongside your will to explain your rationale.'
Washington Post
16-05-2025
- Politics
- Washington Post
The pronatalist party escalates its war on children
The party of pronatalism and motherhood medals has just escalated its war on children. The GOP's budget bill slashes the safety net to fund regressive tax cuts. That much you might already know. But this is not a mere transfer of wealth from poor to rich; in many ways, it's also a transfer of wealth from young to old. That is, many of the 'pay-fors' in this bill disproportionately hurt babies and children.
