How much is there really in the Bank of Mum and Dad?

Billions saved in the older generation’s piggy bank is not out of the Revenue’s reach, writes Stuart Smyth

The Bank of Mum and Dad (or more likely, the fruits of their hard labour and years of saving) is a phrase often bandied about by today’s media. But how much have members of the older generation tucked away in their metaphorical piggy banks?

In case this question has been keeping you awake at night, now is the time to relax, as the Centre for Economics and Business Research has been crunching the numbers. The CEBR has recently released research indicating that in 2017 the total amount passing from one generation to the next was £69 billion. With the help of a highly complex, highly advanced mathematical algorithm (very different from sticking one’s finger in the air and plucking out a couple of numbers) the CEBR has gone on to estimate that in ten years’ time, this wealth mole hill will have grown into a Alpine mountain of £115 billion – a whopping increase of more than 60 per cent.

So what happens to those billions? The same for everyone.  John Rockefeller’s accountant summed up it neatly when asked following Rockefeller’s death ‘how much did he leave?’ by replying ‘he left it all’.

But the accountant neglected to mention:  what slice does the government take?

The good news is that each person in the UK has a tax free allowance of £325,000. Anything above that amount is taxed at a flat rate of 40 per cent. Significantly, transfers of wealth between spouses or civil partners on death are exempt and any unused allowance on the first death can be claimed on the second; thereby increasing the amount a couple could leave tax free to £650,000.  There are also a number of reliefs for certain assets, particularly those associated with farms and small businesses, and legacies to UK charities are exempt.

But how much does inheritance tax bring in to the UK coffers? In 2016-17 receipts amounted to £4.8 billion, roughly 7 per cent of the total assets transferred for the year and a paltry 0.7 per cent of the UK’s total fiscal revenue. With a general election on the horizon, does this render the golden Alpine mountain susceptible to attack?

Although there had been rumours in the press to the contrary, those eagle-eyed among us would have noticed that ‘inheritance tax’ did not receive a single mention in Labour’s manifesto.  Does this leave the door open for an assault on the craggy rocks of Mount Treasure in the next few weeks? As for the Conservatives, no firm news yet on the contents of their manifesto but they do have form in this area. They bucked the trend by actually delivering a 2015 manifesto pledge, introducing a ‘top-up’ of £175,000 on the tax free allowance mentioned above. Between spouses this could mean an overall allowance of £1 million tax free. Note the safety warning as the ‘top up’ amount is tapered (until it is lost altogether) for estates valued above £2 million.

Ultimately, inheritance tax is a ‘double’ tax as for those who have earned their wealth (rather than inherited it), it taxes already taxed income – a taxing sentence to write. An increase in the rate of inheritance tax or meddling with the tax-free allowance may well encourage more people to structure their affairs efficiently to minimise the tax burden.  The most enjoyable option?  Learn to SKI (Spend the Kid’s Inheritance)!

Stuart Smyth is an Associate at boutique private wealth law firm Maurice Turnor Gardner LLP



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