Article

Taboo of discussing inheritance costs families £80,000 in unnecessary tax and destroys relationships

Families could be paying an avoidable tax bill of more than £80,000 because parents are too embarrassed to talk to their children about their financial future, according to our latest research

| 5 min read

Families need to have the ‘grown up’ version of the birds and the bees talk

Families could be paying an avoidable tax bill of more than £80,000 because parents are too embarrassed to talk to their children about their financial future, according to our new research.

Proper advance planning could save up to 40% on death duties. Instead, parents leave their children unprepared and potentially storing up future problems. Not only could families be paying too much inheritance tax (IHT), they are also at risk of family disputes over inheritances.

In 2017/18 taxpayers paid a total of £5.2 billion* in IHT; up to £2 billion of this (40%) could have been saved with the right advice to help navigate inheritance tax rules, which amounts to around £81,600 per estate eligible for IHT*.

According to John Porteous, Group Head of Distribution at Charles Stanley and a Chartered Financial Planner: “It’s important that families talk about inheritance so they can plan ahead. Not only will everyone be clear on what to expect, which can prevent family conflict further down the line, but it means as much of your hard-earned money as possible is passed on to loved ones.

With the proper planning, the impact of inheritance tax can be minimised by taking advantage of legitimate exemptions, although many of these can be complex which is why they are often missed. Importantly, the longer you leave it, the fewer options you have.

John Porteous, Group Head of Distribution at Charles Stanley

The research was undertaken by Censuswide, conducted among more than 2,000 parents of children aged 18 or older, as well as millennial-aged adults aged 18-30, also found that:

  • 24% of parents with adult children have talked openly to them about the issue of inheritance.
  • 30% of parents have talked to their family about their will; only 36% have made their children executors of their estate.
  • Although 36% of parents have made their children executors of their estate, only 11% of young people are aware that they are an executor
  • Children assume that their parents have made provisions, with only 19% saying their parents don’t have a will; in reality, 44% of parents don’t have a will

The most common reason for not discussing inheritance is because the subject is awkward (14% cite this excuse). This, in turn, can lead to family friction and cause resentment. 62% of millennials would be unhappy if their parents favoured their siblings by leaving them more in their wills or left them out altogether and would feel betrayed, jealous or financially insecure; despite this 19% of parents may not divide their estate equally amongst their children.

Millennials would be more forgiving if their own children benefitted from their parents’ estate, but 23% of millennials would be unhappy if their parents left them out and gave their inheritance directly to their grandchildren; 25% of parents surveyed said they may pass their estate directly on to their grandchildren.

Parents may also be creating further family tensions by unequally passing on gifts throughout their lifetime, which are not being offset against future inheritances.

59% of young people have received a financial gift from their parents such as money to travel, to buy a property or to pay for a wedding or education. 82% have never been told these will be offset against their inheritance, and only 5% of parents have offset these gifts against any inheritance.

Dr Greg Davies, Head of Behavioural Finance at Oxford Risk says: “In every financial decision there is a tension between a good decision and a comfortable decision, and this couldn’t be truer than where a good decision requires uncomfortable conversations and emotions. Unfortunately, the natural human inclination is to reach for comfort even if this is costly – this is not irrational, but can be extremely expensive!”

Not talking about finances and inheritance could also result in families losing out financially.

Two third of millennials (65%) haven’t thought about planning for the future when it comes to inheritance. Just over 1 in 5 (21%) rely on the information on the internet to help plan for the future and one in ten (11%) speak to friends.

The biggest concern of parents is that their children won’t get suitable professional advice to make the most of their inheritance (33%), although only 21% advise their children to get professional advice.

John Porteous at Charles Stanley concludes: “British families have to realise that being uptight about discussing finances in the family comes at a price. Inheritance tax discussions with children are the ‘grown-up’ version of the birds and the bees talk. You might not want to have ‘the talk’, but not having it is a lot worse, and there’s no point in putting it off.”

*In 2015-15, 4.2% (24,500) of UK deaths (588,000) were liable to IHT

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Taboo of discussing inheritance costs families £80,000 in unnecessary tax and destroys relationships

Read this next

A question from a client: What should I be asking?

See more Insights