Preparing for the Great Wealth Transfer

The so-called “Great Wealth Transfer” is well underway. According to FTAdviser, it will see around £7 trillion pass between generations over the next 30 years. 

That’s a significant sum. When it comes to passing on your wealth, you’ll want to make sure you do so tax-efficiently. And to beneficiaries with the financial education to make the most of their inheritance. 

Estate planning is always a difficult juggling act. You’ll want to live your desired lifestyle now, keep some money back as a contingency against potential later-life care costs, say, and provide a legacy. This is only made harder by changing rules and a tax system in flux. 

But financial planning can help you navigate this changing landscape.  

Keep reading to find out how. 

Why financial education is crucial for a successful wealth transfer? 

Our attitudes to money are formed early and, according to the Telegraph, likely by the age of seven. They’re based on the money mindsets and habits we see exhibited by those around us, but younger generations will have their own outside influences, too. 

In a world of unregulated financial advice available instantly via social media, a solid foundation is key.  

For younger children, begin with simple lessons, like: 

• Money must be earned and then saved to buy things of value. Chores for pocket money and a high street bank account can help here. 

• The difference between “wants” and “needs” and the importance of budgeting. Simple lessons like paying your future self first can be taken into all aspects of adult life.  

As children grow older, more practical lessons might help, such as: 

• The concept of interest and the power of compound growth. Earlier lessons in saving should help to instil the value of patience and a long-term focus. 

• How a mortgage works. It’s never too young to start explaining complex financial processes, and an early understanding will only help when the time comes for your child to buy their first home. 

• The importance of managing debt. While well-managed debt can help to build a strong credit score, younger generations also need to know how quickly debt can escalate. 

These important lessons can provide a solid foundation, but there’s still work to do. 

Open communication about money and financial literacy breaks the taboo 

One of the most important lessons to instil is that money isn’t a taboo topic. You can lead by example here through open and frank discussions about your household finances and, when the time comes, potential inheritance and estate plans. 

It isn’t comfortable to talk about your own death, but setting out your inheritance plans can help to ensure all involved parties are on the same page, as well as provide an opportunity for your beneficiaries to ask questions. This is especially important if you don’t intend to split assets equally or you suspect some plans could cause contention after you are gone. 

The chance to clearly explain your rationale and manage expectations could prove invaluable. 

Structured estate planning might mean “giving while living” but plans will also need to be adaptable to changing rules  

The chancellor’s planned changes to the Inheritance Tax (IHT) treatment of pensions, due to take effect in 2027, highlight the changing landscape in which your plans are formed. 

That’s why your long-term plans are never set in stone, but adaptable and flexible to fluid rules and your changing needs. 

Giving while living 

Rather than planning to give away your wealth on death, you might find that leaving a living legacy is a tax-efficient way to pass on wealth to beneficiaries when they need the money most. It also has the non-financial benefit that you’ll still be around to see the difference your money makes. 

Giving while living lowers the value of your estate for IHT purposes. While some gifts can be made IHT-free from the outset, others might be considered potentially exempt transfers (PETs), which become free from IHT if you survive for seven years after the date the gift is made. 

HMRC exemptions 

As we’ve already touched upon, some gifts can be made tax-free from the moment you make them, using certain HMRC exemptions. These include: 

• Annual exemption: You can gift up to £3,000 (2025/26 tax year) IHT-free thanks to the annual exemption. It can be carried forward for up to a year and is individual to you. As a couple, you could gift £12,000 this year if neither of you used last year’s exemption. 

• Small gifts: Gifts below £250 are generally not subject to IHT. You can also make wedding gifts of up to £5,000, depending on your relation to the married couple. 

• Gifts from surplus income. This allows you to make regular payments to your beneficiaries if you can prove that the payments: 

• Are regular 

• Come from surplus income  

• Do not affect your standard of living. 

Gifts could prove invaluable when it comes to passing on an inheritance during the Great Wealth Transfer.  

Covering a liability through protection  

Where an IHT liability is expected to be large, life insurance might form part of your structured estate planning.  

You might opt to give large gifts and then take out an insurance policy that mirrors the potential IHT liability on that gift. You’d need a decreasing term assurance plan with a sum assured that decreased over seven years, in line with the “seven-year rule” mentioned above. We can help here. 

IHT is usually paid at 40% but decreases on a sliding scale once you survive for three years from the date the gift is made. 

This is just one structure we might help you put in place. Others might include the use of trusts. We can also help you to make changes where a pension previously formed the backbone of your plans, crucial if the chancellor’s changes go ahead in 2027. 

Get in touch 

Have questions about preparing for the Great Wealth Transfer and ensuring a tax-efficient transition for your beneficiaries? Contact a Foster Denovo adviser at advise-me@fosterdonovo.com or call 0330 332 7866 for guidance. 

Please note 

This article is for general information only and does not constitute advice. The information is aimed at retail clients only. 

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits. Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.  

The Financial Conduct Authority does not regulate estate planning, cashflow planning, tax planning, trusts, Lasting Powers of Attorney, or will writing.  

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief. Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.