Intergenerational wealth planning

How clients can pass on wealth to the next generation

Talking to clients about how to pass on wealth involves a lot of technical aspects, from understanding tax rules to keeping abreast of changing regulation.

At the same time, with the changing family dynamic, an ever-expanding younger crop of people who want to do more with their money and more people being caught in the inheritance tax bucket, advisers are finding that they need to be more proactive in bridging the information gap for their clients.

It is no longer just about finding ways to keep the inheritance tax bill low.

Financial advisers have to now look at how they can engage both the older and younger members of a family, who will have different financial concerns.

While doing this advisers need to find new ways of communicating with existing and future clients which are different to how they may have communicated with their more traditional clients.

In this guide we will look at how pension wealth should be passed on to family members, how advisers can help different generations and other ways individuals can pass on wealth to family, like equity release.

Contributors to this guide include: Elaine Cruickshank, tax and trusts manager at Aegon; Graeme Robb, a senior technical manager at Prudential; Kate Boswell, a director in the Wealth Planning team at Stonehage Fleming; Graeme Dreghorn a financial adviser from Ascot Lloyd; Peter Savage a financial adviser at Fairstone Financial Management; Philip Norman-Butler senior investment manager at Charles Stanley; Tom Selby a senior analyst at AJ Bell; Will Hale, chief executive of Key Retirement’s advisory arm; Rachael Griffin, tax and financial planning expert at Quilter and Henny Dovland a senior business development manager at Time Investments

Why clients need inheritance tax planning

The property market has had something of a rollercoaster ride over the last 20 years - more so in the wake of the most recent financial crisis when average house prices crashed.

It followed a period of rapid house price increases during the early part of the Millennium when annual rises of well above 10 per cent became the norm.

Overall, average house prices have increased from around £80,000 in 1999 to £230,000 today. 

Those averages will include large numbers of people who have enjoyed rapid increases in the value of their property (or properties) and have therefore found themselves caught in the inheritance tax net.

Property prices

To get a good idea of the impact property price rises have had on IHT, between 2009/10 and 2015/16 the net capital value of estates in the UK increased by £17bn to £79bn. 

Around 54 per cent of this increase was attributed to residential property, according to HMRC figures.

Meanwhile, the Office for Budget Responsibility estimates that £5.3bn will be raised in Inheritance Tax Receipts in 2019/20. 

This more than double of what it was in 2009/10 - at £2.384bn.

Elaine Cruickshank, tax and trusts manager at Aegon says: “This is a considerable amount given that inheritance tax is broadly speaking a voluntary tax, as it can be mitigated, for example through inheritance tax planning, such as making use of IHT exemptions and reliefs, making lifetime gifts seven years before your death and through trust planning; for example putting life policies in trust help to keep the value of the life policy outside the applicant’s estate.” 

If you look at the number of families getting into the IHT net, there is a 40 per cent increase in the number of estates liable for IHT
Graeme Robb, Prudential

Graeme Robb, a senior technical manager at Prudential adds: “That is not really just about the wealthy paying more IHT. It is more subtle than that. If you look at the number of families getting into the IHT net, there is a 40 per cent increase in the number of estates liable for IHT.”

This increase in IHT receipts has not just been driven by the rise in house prices which have gone up by 30 per cent since 2009, according to OBR figures.

The nil rate band threshold - the point at which IHT kicks in -  has also remained frozen at £325,000 since April 2009.

It is currently scheduled to remain at that level until April 2021 and then will rise in line with the Consumer Prices Index thereafter. 

If it had risen in line with inflation it would now be £423,000. 

As property prices have risen the government has also created the residence nil rate band.

It was introduced in 2017 to reduce the burden of IHT for most families by making it easier to pass on the family home to direct descendants without a tax charge.

It is in addition to the nil rate band of £325,000, and is conditional on the main residence being passed down to direct descendants, such as children and grandchildren.

This means that by 2020/21 families may not need to pay IHT on up to £1m because each parent will have a nil-rate band of £325,000 plus a residence nil rate band of up to £175,000.

But some people will still miss out.

Ms Cruickshank says: “Given the conditions that have to be met, this won’t apply to every estate; for example, those who don’t have children won’t benefit from this relief. 

“It’s also worth noting that the residence nil rate band is reduced through tapering where the deceased’s estate is worth more than £2m. 

Second death

“This could be an issue particularly on the second death, if everything passes on the first death to the surviving spouse or registered civil partner, as on the second death the combined value of the estate could exceed this threshold.”

As a result of the complexities of inheritance tax planning the Office of Tax Simplification was commissioned by the former Chancellor, Phillip Hammond to review how it could be made simpler.

The first report which came out last year looked at its administration, while the second which made recommendations to change the way some parts of IHT planning works, was published in July.

This report is now one of the many items sitting on Chancellor Sajid Javid’s desk.

But where it lies in his list of priorities remains to be seen.

The OTS has made 11 recommendations which are concentrated on three key areas of Inheritance Tax:

  1.  Lifetime gifts, including liability for paying any tax due on such gifts
  2.   Interaction with Capital Gains Tax
  3. Businesses and Farms  

Summary of Recommendations: 

Key area 1: Lifetime gifts 

Gift exemptions package 

1. The government should, as a package: 

• replace the annual gift exemption and the exemption for gifts in consideration of marriage or civil partnership with an overall personal gifts allowance 

• consider the level of this allowance and reconsider the level of the small gifts exemption 

• reform the exemption for normal expenditure out of income or replace it with a higher personal gift allowance 

Gifting period and taper package 

2. The government should, as a package: 

• reduce the seven year period to five years, so that gifts to individuals made more than five years before death are exempt from Inheritance Tax, and 

• abolish taper relief 

3 The government should remove the need to take account of gifts made outside of the seven year period when calculating the Inheritance Tax due (under what is known as the "14 year rule"). 

Liability for payment and the nil rate band

4. The government should explore options for simplifying and clarifying the rules on liability for the payment of tax on lifetime gifts to individuals and the allocation of the nil rate band. 

Key area 2: Interactions with Capital Gains Tax 

5. Where a relief or exemption from Inheritance Tax applies, the government should consider removing the capital gains uplift and instead provide that the recipient is treated as acquiring the assets at the historic base cost of the person who has died.

Key area 3: Businesses and Farms agriculture property relief (APR)/Business property relief

6. The government should, as a package: 

• consider whether it continues to be appropriate for the level of trading activity for BPR to be set at a lower level than that for gift holdover relief or entrepreneurs’ relief 

• review the treatment of indirect non-controlling holdings in trading companies, and

• consider whether to align the Inheritance Tax treatment of furnished holiday lets with that of Income Tax and Capital Gains Tax, where they are treated as trading providing that certain conditions are met 

7. The government should review the treatment of limited liability partnerships to ensure that they are treated appropriately for the purposes of the BPR trading requirement. 

8. HMRC should review their current approach around the eligibility of farmhouses for APR in sensitive cases, such as where a farmer needs to leave the farmhouse for medical treatment or go into care. 

9. HMRC should be clearer in its guidance as to when a valuation of a business or farm is required and, if it is required, whether this needs to be a formal valuation or an estimate. 

Other areas of Inheritance Tax 

10. The government should consider ensuring that death benefit payments from term life insurance are Inheritance Tax free on the death of the life assured without the need for them to be written in trust. 

11. The government should review the pre-owned asset tax (POAT) rules and their interaction with other Inheritance Tax anti-avoidance legislation to consider whether they function as intended and whether they are still necessary. 

It is now up to the government to review the recommendations, but with Brexit taking up the majority of parliament’s time it may be a while before the new Conservative government decides on what to do.

The HMRC is also undertaking a consultation on the taxation of trusts, so the government might wait on the outcome of that before making a decision.

At the same time, you have the FCA looking into intergenerational differences and the changing financial needs of consumers from different age groups.

This has all come at a time when Labour is talking about possibly abolishing IHT and instead treating lifetime gifts and inheritances as taxable income in the hands of the recipients.

Both Labour and the Liberal Democrats want to overhaul IHT and introduce a lifetime gift tax. 

This would be a tax at the same rates as income tax on lifetime gifts over a tax-free lifetime allowance, instead of levying tax on the value of the deceased’s estate. 

Labour has stated that the lifetime allowance would be £125,000.

Ms Cruickshank explains that if a property worth £500,000 were gifted to an additional rate taxpayer, this could result in an income tax liability of £168,750 ((500,000 – 125,000) x 45 per cent).

In contrast, under the current legislation, gifts to individuals are exempt from IHT if the donor survives for seven years following the gift. 

If the donor dies within the seven year period, then IHT will be charged at 40 per cent on the value gifted in excess of the available nil rate band and this IHT liability is reduced on a sliding scale where the donor dies after three years (known as taper relief). 

IHT planning for the whole family

Generations have shifted in their relative wealth so that those that have retired, tend to have paid off their mortgages and some are lucky to have defined benefit pensions; millennials on the other hand, think themselves lucky to be able to get onto the property ladder. 

When talking about intergenerational planning, it is very easy to define it by saying ‘it is about looking at individual needs as different people will have different goals in their life, but it is also about looking at the family as a unit’.

But what does that really mean in practice?

Different generations

Kate Boswell, a director in the wealth planning team at Stonehage Fleming says advising different generations of one family and experience has taught her that each generation faces different challenges.  

She adds: “For wealth creators, the challenge is typically to ensure that the wealth they have worked so hard to build up is used positively by future generations of their family.  

“This often means ensuring that it is passed down to those generations in a sensible and controlled manner and that the beneficiaries are empowered and able to deal with the management of family wealth when the time is right.   

“We work with families to help them achieve this – from understanding the values that they would like to attach to family wealth to educating the next generation on building strong financial foundations.”   

One of the more challenging area when it comes to intergenerational wealth planning is how to engage the younger members of the family.

A study by Sanlam last year found that the adviser industry was concerned about its ability to target a younger generation of clients. 

Four in five (81 per cent) financial advisers say intergenerational transfer of wealth is the greatest opportunity for their industry, but a quarter (23 per cent) are concerned about their ability to attract younger clients. 

Sanlam says the market opportunity is there. Three-quarters (76 per cent) of the under-45s will be engaging the services of a financial adviser once they have received their inheritance, as almost two thirds (64 per cent) of 25- to 45-year-olds expect to receive an inheritance from their parents and grandparents.

Nearly half of these (29 per cent) are expecting to receive at least £50,000 in fixed assets or money. 

Three-quarters (76 per cent) of the under-45s will be engaging the services of a financial adviser once they have received their inheritance

And this year a report by Brooks Macdonald found almost all professional advisers discuss wealth transfer with their clients and the majority also have relationships with members of their clients’ families. 

However, this is primarily with their spouse and almost half of advisers do not have any relationship with their clients’ children, even though they are the ones who generally inherit the greatest proportion of donor wealth.

This lack of inheritor engagement puts the family relationship at risk at the point of wealth transfer, the firm says.

Younger clients

With younger clients, they are starting to get on the property ladder; have mortgages and a young family.

So they would want to protect their income in case one of them falls ill and is unable to work or a partner passes away.

As the individual gets older, the focus shifts to savings, investments and financial planning.

As they get older they will want to make sure assets are protected from inheritance tax.

The report went on to say that advisers can build relationships with their clients’ inheritors by using the fact that clients can be reluctant to discuss financial issues with their families to help break down barriers by proactively seeking to include other family members in conversations about wealth planning.

Henny Dovland a senior business development manager at Time Investments says: “[Intergenerational Wealth Planning] is an area where it could be years that an advisers is talking to a client; starting this conversation, planting the seeds and opening up the opportunity.

Sometimes it does take a long time before a client is ready to do something, because no-one likes to address their own mortality. 

“Sometimes it requires a life event to trigger that.”


Graeme Dreghorn a financial adviser from Ascot Lloyd says a good time to start having the conversation with his existing clients is when he notices that the client is starting to spend less, as this is an indication they are starting to slow down and are not spending as much money.

Mr Dreghorn says:  “I slowly start trying to introduce the idea that not only do we have to start making plans, it is important to make sure the plans include their children.

“[With one client that has two children] I’ve been saying to them, the first thing I need you to do is speak with your kids, then we all need to meet.

The ideal thing is to open a discussion with the whole family
Graeme Dreghorn, Ascot Lloyd

“The planning is not just a case of them gifting the money away. The ideal thing is to open a discussion with the whole family, so there’s clarity on both sides and to make sure the benefit goes to the right person.”

Peter Savage, a financial adviser at Fairstone Financial Management approaches it by including the whole family from the get go when starting the conversation about intergenerational wealth planning, particularly where trusts are being created.

Mr Savage says: “We encourage mum and dad to say, ‘you probably need to have a talk with your children. If something happened to you tomorrow, would your kids know who your professional adviser is?”

Philip Norman-Butler senior investment manager at Charles Stanley adds: “It is important to open a dialog with each member of the family, to understand the needs and expectations of all, and to build a relationship across all generations. The better you understand the family the better you can support them in achieving their financial goals.”

There are various tools that advisers have at their disposal to help different members of the family.

Aegon says using trusts can help advisers plan and advise different generations of a family, for example a grandparent places a lump sum in trust for the benefit of grandchildren. 

Advisers should help their customers to take advantage of available IHT exemptions and reliefs
Elaine Cruickshank, Aegon

The grandparent, the trustees and then the children (on receiving capital distributions from the trust) could all be customers for the adviser.

Elaine Cruickshank, Tax and Trusts Manager at Aegon adds: “When advising clients, advisers should help their customers to take advantage of available IHT exemptions and reliefs and recommend solutions that fall within the scope of HMRC accepted practice.”


The word ‘trusts’ can put people off because it is perceived as complicated or expensive.

But Graeme Robb, a senior technical manager at Prudential says they are a tax efficient way of passing money to family without creating an IHT liability for them as well.

He adds if a client has a potential IHT liability, they could consider mitigating that by investing in business property relief, because the individual will get 100 per cent relief on those assets. 

This involves investing in unquoted trading companies, so therefore, carries with it a higher degree of risk. So it will not be for everyone.

Mr Robb adds: “If a client looks at those kind of schemes and discounts them because they are not in that risk profile, your next step is really gifting away.” 

Gift allowance

Everyone has a £3,000 gift allowance a year. It means that anyone can give away assets or cash up to a total of £3,000 in a tax year without it being added to the value of an estate for IHT purposes.

Any part of this annual exemption which is not used in the tax year can be carried forward to the following tax year. It can only be used in the following tax year and cannot be carried over any further.

An individual can give as many gifts of up to £250 to as many individuals as they want - although not to anyone who has already received a gift from that individual’s whole £3,000 annual exemption.

None of these gifts are subject to Inheritance Tax.

Money Advice Service

Guidance from the Money Advice Service (Mas) adds: “What and how much you wish to give your children or other members of your family is completely up to you. But to ensure that it’s tax-free, it’s important to plan when to make that gift.”

If an individual lives for more than seven years from when they make the gift, the children or family will not have to pay IHT on the gift when the individual dies.

However, any income made from this gift could have tax implications for the beneficiary, for example, Capital Gains Tax.

But if the individual does not live more than seven years after making the gift, the beneficiaries might have to pay IHT.

When the gift is first made it is called a potentially exempt transfer but if the individual dies within seven years, it is called a chargeable transfer.

Mas advises that if an individual is thinking about giving away money or assets to their family and friends to reduce Inheritance Tax, it is very important the individual makes a record of:

  • what they gave
  • who they gave it to
  • when they gave it
  • how much it is worth

This will make it easier for the executor of the estate to work out during probate what parts of an estate are liable for tax.

Where an individual has paid off their mortgage they could also look at downsizing as a way to pass on the wealth.

Additionally, high-earning parents, who lose 1 per cent of their child’s benefit for every £100 they earn above £50,000, can escape the tax charge where monies paid into a pension scheme reduce the final amount of their adjusted net income.

Bridging Gap

With more and more people being caught in the IHT trap, this is now catching families who had never thought about speaking with an adviser before.

An adviser might also have clients with relatives who do not yet have a significant pot of money, so they might not be considered worth the while to speak to.

Mr Savage at Fairstone Financial Management says the industry is behind the curve when trying to bridge the gap with individuals who are not used to receiving advice.

You end up having a relationship for life as opposed to more of a transactional relationship
Rachel Griffin, Quilter

He adds: “As an industry there are people that require financial advice. It is up to us to be a bit  more proactive as to how we market ourselves and demonstrate how we can help them.”

Rachael Griffin, tax and financial planning expert at Quilter says: “Customers are asking advisers, not just about themselves but their children as well. Equally advisers are looking to add more value. 

“They can do that; not just by planning for that individual but by building a relationship with their future clients. You end up having a relationship for life as opposed to more of a transactional relationship.”

Clients can now pass on their pension

In recent years, newer means of passing on wealth, that might not have been considered conventionally have been introduced.

Following pensions freedoms, it is now possible to pass on one's pension to one's descendants, in some circumstances tax-free. 

But what are the rules here and what planning should one put in place?

Reforms to the tax treatment of pensions on death in 2015 mean they are now an efficient vehicle not just for retirement saving, but also IHT planning purposes.

Dying before age 75

If a client dies before age 75 they are now able to pass on their entire fund tax-free to their nominated beneficiary (or beneficiaries), while if they die after 75 it will be taxed at the beneficiaries’ marginal rate of income tax (either when they take them as a lump sum or designate them to provide an income).

In the latter circumstances if the beneficiary subsequently dies before age 75, any undrawn Sipp funds they have inherited can be passed on tax-free to their nominated beneficiaries, says Tom Selby a senior analyst at AJ Bell.

Sipps can therefore be used to cascade wealth down the generations in a tax-efficient manner.

Mr Selby adds: “As well as making sure any nominations are up-to-date, advisers also need to ensure pension funds are ‘designated’ to beneficiaries, for example, putting the funds into the beneficiaries’ names within two years.”

The tax implications of trying to leave money in defined benefit (DB) to a spouse, children or grandchildren is also worth considering.

Defined benefit pensions often come with a spouse’s pension attached. 

Mr Selby explains this usually means when the member dies, their spouse will be entitled to a proportion of their guaranteed income stream, for example 50 per cent.


But the extra flexibility available in defined contribution (DC) plans on death has been one of the primary drivers of a surge in transfers from defined benefit schemes since 2015.

But the flexibility on offer with pensions also depends on the exact terms of the contract governing the pension plan.

Therefore, it is important that these are reviewed, Elaine Cruickshank, Tax and Trusts Manager at Aegon says.

She adds: “Some legacy contracts might only offer the rights to lump sum death benefits. Where the plan offers full flexibility, the beneficiary could receive lump sum death benefits, a drawdown pension income, or an annuity income. 

Clients are advised to spend money from other assets which might fall under the IHT banner before touching their pensions.

“It’s important on the nomination form that the member names all the beneficiaries they would like to benefit from the pension. Any spousal bypass trust planning that was previously put in place should be reviewed to see if it is still required.”

With pensions sitting outside of the estate, clients are advised to spend money from other assets which might fall under the IHT banner before touching their pensions.

Where an individual has other assets to help fund their lifestyle during retirement, it can be efficient for them to leave their pension undrawn and maximise the pot available to pass onto their beneficiaries in a tax efficient way.

Kate Boswell, a director in the wealth planning team at Stonehage Fleming says: “Pensions are just one part of an individual’s overall asset base and therefore just one piece of the jigsaw when considering their overall planning.

Pensions are just one part of an individual’s overall asset base
Kate Boswell, Stonehage Fleming

“For many high net worth individuals, who have a sizeable asset base outside of their pension, it doesn’t necessarily make sense to draw on their pension to fund their retirement.  

“Instead, it can potentially be left to their chosen beneficiaries free of IHT.”

Echoing his thoughts Graeme Dreghorn a financial adviser from Ascot Lloyd says for advisers with wealthy clients who have got fairly significant Isa portfolios, it can be more tax efficient from an income tax and IHT perspective to leave drawing the pension until last or draw less out of the pension and more out of the investments. 

He adds: “That is beneficial for IHT because any money that sits in the pension passes through to the family as long as there is wealth in that pot.”

DB pensions

But Ms Boswell adds that for those who have DB pensions, the position isn’t always simple.  

DB pensions typically provide a guaranteed, index linked income to the plan holder and their spouse and children (up to a certain age) and are therefore extremely valuable assets, which for the vast majority of individuals, should never be interfered with.  

She says: “For an individual who has other considerable assets, it is worthwhile considering whether this guaranteed income has the same value and if not, what action might be taken to build more flexibility into their situation.”

Bypass trust

Another option available when planning how to leave money to family from a pension is a bypass trust.

A spousal bypass trust is a discretionary trust which is set up by the member or pension holder to receive pension death benefits.

By nominating the bypass trust as the recipient of the death benefits instead of the beneficiary themselves, the trustees can make payments to the beneficiary without it forming part of the beneficiary’s estate for inheritance tax purposes.

Mr Dreghorn adds: “The benefit of it is that rather than the spouse bringing it to the estate and incurring a 40 per cent tax charge it goes into the bypass trust, where the spouse has access to income, or capital, but it would remain outside of the estate for IHT purposes.”

Pensions are becoming very useful tools in terms of their flexibility, but this could all change next year as a result of the ongoing Staveley Court drama.


The case centres on Mrs Staveley, who transferred a portion of a pension she had set up with her husband, into a new pot and left it to her children.

A few weeks later, she died.

Oweing to Mrs Staveley being terminally ill the HMRC treated the transfer as a "chargeable lifetime transfer" followed by an "omission to act" as she did not draw any benefits, and applied inheritance tax. 

It argued the two actions were linked and designed to reduce the value of her estate for IHT purposes.

But her estate argued the transfer was exempt because it was not meant to confer a "gratuitous benefit".

The Court of Appeal found in favour of HMRC, overturning a previous decision by the first tier tribunal and the upper tier tribunal.

The Supreme Court is set to make a decision early next year when it reviews the case.

Equity release is another way to pass on wealth

Equity release has become another way of passing on family wealth, as millennials have very little access to the housing market.

Their parents, or more often their grandparents, are often living in very valuable property, many of them mortgage free. 

According to Key’s latest Market Monitor report 28 per cent of those who have taken out equity release have released funds to assist friends and family. 

Five years ago Key’s Market Monitor showed 23 per cent of customer’s gifted funds to friends and family.

This might be to help someone onto the property ladder, pay for an expense like a wedding or university fees or simply ensure that they have a more comfortable standard of living. 

Will Hale, chief executive of Key Retirement’s advisory arm says the increase highlights a steady growth in the trend for the over 55s to consider their own property wealth to support aspirations around intergenerational wealth transfer. 

Mr Hale adds: “For most customers equity release isn’t a single use product. Many customers use equity release for a number of reasons and therefore, whilst gifting to family could be a main driver, a customer may also use some of the funds to support their own needs or wants in  later life - such as future proofing their home to make it more suitable for living in older age.” 

But equity release is not without its risks.

For most customers equity release isn’t a single use product
Will Hale, Key Retirement

An individual can draw down funds from their property by equity release either as a lump sum or in smaller tranches. 

They will pay interest in relation to the funds they borrow or draw down. This could be expensive the earlier in life they start to release equity and it could mean that there will be less to pass onto their beneficiaries on death.

When the money is released, the individual could make gifts of the money released to their grandchild to pay for a deposit on a property. 

IHT estate

And unless these gifts are covered by an IHT exemption, the donor will have to survive for seven years for the gifts to fall outside their IHT estate.   

Equity release can help to reduce the value of an estate for IHT purposes, so long as the money released is either spent or gifted and the individual survives for more than seven years from the date of the gift.

Elaine Cruickshank, tax and trusts manager at Aegon says individuals using equity relief should ensure that this fits in with their overall financial, tax and succession planning. 

Ms Cruickshank adds: “For example by benefitting one member of the family, this might have a knock on effect on what others will receive on death and the donor might want to revisit their will to take account of this.”

As part of the equity release advice process, an adviser will discuss with the client their aspirations and their financial situation before providing them with a recommendation as to what the best option is for them. 

This will cover all potential solutions from downsizing, to accessing other assets, to using other later life lending products such as retirement interest-only mortgages.

A qualified adviser will highlight the differences each financial option has

Once a product is selected, if a customer and their property meets the lender requirements and is happy to proceed the adviser will help them through the entire process until the funds are released and can be gifted to family or friends.”

A qualified adviser will highlight the differences each financial option has in relation to the clients’ individual financial circumstances. 

Mr Hale says with a ‘living inheritance’, if someone wants to gift funds to a grandchild for a housing deposit through equity release they will have the benefit of watching their grandchild purchase the property and see the impact the gift has had first hand.  

They might also potentially have some control over how the ‘pre-inheritance’ is spent to ensure it does achieve what they want.

In addition to the risk of falling foul of inheritance tax laws if these are not taken into account properly, one important consideration when passing on wealth through equity release – or any form of pre-inheritance - is that the client may be restricting their own financial flexibility in the future.

Mr Hale adds: “Naturally people take their future needs into account when gifting but costs such as care fees can be significant and unexpected so it is important that people are realistic when they make these decisions.

Deliberate deprivation

Another potential pitfall is the concept of deliberate deprivation.  

The vast majority of people need to pay for some or all of their care in later life and if it is believed that they have given their assets away to avoid doing this, they could be charged by their council with deliberate deprivation. 

And they may still calculate care fees as if the individual still owned the assets.

Mr Hale says: “There are naturally caveats around this and the council will need to prove that they gifted the cash with intent but if a client takes out equity release, gifts money to their family and then goes into a home in quick succession this might be considered.” 


While the cash released via equity release is tax-free – the person who owns the home should not be liable to pay tax on this amount – it is not inheritance tax-free. 

All the normal checks and balances around inheritance and gifting will come into play so this is certainly something that people need to be aware of.  

As part of the advice process, the client will be asked to consider the implications of gifting some or all of their equity to family or friends but equity release advisers are typically not tax experts and therefore those with more complex affairs should consider seeking specialist tax advice.

Mr Hale says: “While intergenerational financial advice is a widely recognised concept in the US, it is far less so in the UK and the vast majority of people appear to be more comfortable not discussing their financial affairs with their family. 

“That said, if a person is taking out equity release, they are encouraged to get their families involved so that the wider family unit is comfortable with the choices being made.  

“This does not happen in every case but it does mean that when it comes to managing the estate, people are aware of the fact that their parents have taken out a product secured on the family home.”