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Cost Of Living Drives Early Inheritance Gifting

  • New research from Barclays Wealth shows the impact of rising living costs on inheritance and retirement planning
  • Over a third of parents to 40-year-old millennials think they will need to give inheritance support to their children this year to help with immediate living costs1
  • After previously spending inheritance on property and starting a business, nearly all (94 per cent) 40-year-old millennials would use any inheritance received now to help with living costs

As the eldest millennials turn 40-years-old, their parents are considering gifting them inheritance early to increase support for their living costs this year, according to new research from Barclays Wealth.

With the Bank of England warning inflation could tip 13 per cent by the end of 20222, over a third (37 per cent) of parents of 40-year-old millennials now anticipate gifting inheritance this year to help their children more with immediate living costs, as opposed of bigger purchases like property. The research showed that almost two in five (38 per cent) parents also expect to be more flexible in their support across the rest of this year, giving money early when needed rather than planning ahead.

More than three in four (76 per cent) 40-year-olds have already received some form of inheritance from their parents, with the majority putting this to use in savings and investments (30 per cent), setting up their own business (20 per cent), or buying their first property (18 per cent).

However, if they were to receive that same inheritance this year, nearly all (94 per cent) said they would use more of it on living costs – including bills, daily travel, food, clothing, and healthcare. Of these respondents, 9 in 10 (92 per cent) earn £55,000 and over.

For those 40-year-olds who are set to receive an inheritance in the future, using the funds on living expenses (18 per cent) comes second only to putting this into savings and investments (31 per cent), showing the impact of the cost of living on financial priorities.

The UK-wide research of 2,000 parents of 40-year-old millennials showed that despite the cost of living and rising inflation, the majority (85 per cent) are confident they will have enough to support their whole retirement.

However, over half of parents (57 per cent) are worried inheritance tax will have a significant impact on their final estate due to increasing financial support for their children, as more than half (58 per cent) expect to dip into their retirement pots to support their children more throughout the rest of their lifetime given the rise in cost of living, whilst half (56 per cent) expect to live longer and therefore spend more during their retirement.

For these reasons, they anticipate the current rate of inheritance tax over the £325,000 threshold will leave even less behind for other beneficiaries including their spouse or partner, grandchildren, friends, and other family members. To help manage their finances, four in five (83 per cent) have increased the frequency of reviewing their investment portfolio in the last two years, with one in four (28 per cent) doing so once a month, and one in five (22 per cent) doing so every 2-3 weeks.

For those parents who have already been financially supporting their children more in their lifetimes, the main motivating factors have been a desire to help their children build up their own wealth now (32 per cent), to be more tax efficient (30 per cent), and to help them buy their first property (27 per cent).

Clare Francis, Director of Savings and Investments at Barclays Wealth, said: “The rising cost of living is cutting into even the most resilient saving pots and salaries, forcing many to re-consider their financial priorities, whatever their generation or income. Those millennials now turning 40 are facing very different challenges to when their parents were the same age, however there is equal pressure on parents to step in and support where they can without eating into their own retirement funds.

“Passing down smaller, more frequent sums of money in a lifetime can be both tax efficient and give beneficiaries more flexibility, but the long-term must be considered as well: both in terms of comfortably funding a whole retirement, as well future family milestones. It has always been important that families talk about financial planning with each other and their financial adviser, yet the impact of rising inflation makes having these conversations early even more crucial.”

Source: Barclays

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