Shifting strategies: Property wealth and inheritance planning are changing
Increases in life expectancy mean inheritance is often being passed onto the next generation long after their years of greatest financial pressure have passed. As a result, many HNWIs are adopting a more strategic approach to managing their estates and turning to alternative, emerging financial solutions. David Forsdyke, Head of Later Life Finance at 博鱼体育集团 Frank Finance, explores this growing trend
01 March 2021
博鱼体育集团
The UK鈥檚 ageing population has transformed the way we think about inheritance.
Approximately a quarter of people living in the UK will be aged 65 or older by 2042, up from less than one fifth in 2016, according to the .
Meanwhile average life expectancy will surpass 90 over the next 25 years for both sexes, up from 80 for men and 83 for women today.
All this means that wealth is being passed to the next generation later on in their lifetime. The average age of individuals when their last-surviving parent passes away is expected to rise from 58 for those born in the 1960s, to 64 for those born in the 1980s, according to the Institute for Fiscal Studies (IFS). For about a third of people born in the 1980s, this won鈥檛 happen until they are in their 70s at the earliest.
This shift alters the dynamics of inheritance. By the time sons and daughters hit their mid-sixties, life鈥檚 greatest financial pressures, including raising children, school fees, and climbing the property ladder, are behind them.
This in turn is driving many HNW families to adopt new methods of passing on wealth to their next of kin, both when the need is at its greatest and while they are still able to see the benefits of their legacy.
Modern forms of equity release are proving popular solutions within this trend, as they allow individuals to unlock property wealth that has been accruing over decades. 博鱼体育集团 Frank Finance estimates housing wealth held by those aged 55+ alone now stands at more than £3.1 trillion.
Once considered to be an option of last resort for homeowners struggling with their finances, sweeping regulatory changes, coupled with product innovation, have modernised the industry. It is now considered a strategic move for those with future estate planning in mind.
Meanwhile ultra-low rates and advantages when it comes to mitigating inheritance tax bills mean much of the growth in this market has been driven by HNWIs, with equity release products fast becoming a mainstay on the money menus of independent financial advisors (IFAs).
Property owners unlocked £963 million in property wealth in Q3 2020 alone, according to the Equity Release Council. That was broadly in line with the previous year, despite the pandemic, underlining that long term demographic shifts are the main drivers of demand, rather than more temporary reactions to economic crises or surges.
The concept of gifting property wealth to family members in their seventies is certainly making sense to the clients we advise. It presents a potential opportunity to reduce the value of their estate from a tax perspective and, at the same time, allows them to enjoy the very tangible benefit they are providing to the important people in their lives.
A desire to mitigate the impact of inheritance tax on their estate is also of growing importance to our clients, amid a long-term expansion of inheritance tax (IHT) receipts, which stood at £5.2bn in 2019/20.
One client I advised recently, who owns a £3 million home, was concerned about leaving his children with an inheritance tax bill in the region of £1 million. At the age of 76, we advised him on securing a on his property, the most popular form of equity release, which allowed him to make gifts to his two children of £500,000 each. In doing so, he not only significantly reduced the potential Inheritance Tax bill (subject to certain rules around making gifts, or what HMRC call 鈥楶otentially Exempt Transfers鈥�) but also provided his beneficiaries with a financial boost during his lifetime.
Innovations in lifetime mortgages are underpinned by robust consumer protection, including FCA regulations and the Equity Release Council standards framework. To find out more about modern equity release products, .
David Forsdyke leads the Later Life Finance Team at 博鱼体育集团 Frank Finance and has over 15 years鈥� experience in the equity release market. In 2009 David joined the FCA and became regarded as a subject matter expert on equity release. He now sits on the Equity Release Council鈥檚 Risk Committee and their advisory panel.
Contact David directly if you鈥檇 like to find out more about emerging financial solutions for inheritance planning and property wealth management: [email protected], +44203 869 4706.
