We need an Autumn Budget for fairer intergenerational wealth transfer

  • Written By: Julia Rosenbloom
  • Published: Wed, 15 Nov 2017 14:16 GMT

The forthcoming Autumn Budget should make it easier to pass wealth from one generation to the next, says Julia Rosenbloom, private client tax partner at Smith & Williamson.

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“It’s been mooted Philip Hammond is planning an Autumn Budget firmly skewed at younger voters, but he has a delicate tightrope to walk to ensure older generations are not forgotten,” she said. “Clearly there is no bottomless pot of money and the Chancellor is under pressure to reduce the UK’s public finances deficit. There are, however, still measures he can introduce that will be popular with people of all ages.”

Making it easier to pass wealth from one generation to the next, while parents and grandparents are still alive, is something that the Chancellor should give prominence to in this Budget, says Julia.

“There is a clear benefit to society as a whole if wealth can be passed efficiently on to the next generation, allowing children and grandchildren to invest it,” she added.

Julia Rosenbloom’s three intergenerational Budget proposals:

  1. Increase the amount that can be transferred into trusts without a lifetime IHT charge – “Transfers into trusts in excess of the nil rate band (currently £325,000) generally result in a lifetime IHT charge (at a rate of 20%), with a further 20% payable if the transferor dies within seven years. One of the main purposes of trusts is to allow for controlled gifting to the next generation, but they have lost their appeal because of the potentially high lifetime tax charges associated with establishing them. The government needs to accept that it’s not a good idea for spendthrift children and young adults to take vast quantities of wealth at an early age and should remove the £325,000 limit in order to allow more extensive use of trusts.”

  2. Increase tax-free gift allowance - “The Chancellor should increase the £3,000 limit that can be given to children and grandchildren tax free each year. Given that this amount has not changed since 1981, an increase that is at least in line with inflation would be appropriate.”

  3. Allow regular gifting from capital – “There is a relief which allows gifts to be made without the seven year survival requirement. Such gifts qualify for this exemption provided that a regular pattern of gifting is established and the gifts are made out of income, whilst leaving the transferor with sufficient income to maintain their usual standard of living. While this helps with the transfer of wealth to future generations, the rules are unnecessarily restrictive. The relief should be expanded, so that all regular gifts qualify for the exemption and those that don’t have sizeable annual incomes can also benefit.”

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

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