Rich parents fear children will squander inheritance
An increasing number of high-net-worth parents are worried that leaving too much money to their children will be a “curse on their lives” and are turning to charity donations to avoid handing large sums down the generations.
According to a fresh poll, three quarters of parents with a net worth of £3m or more believe handing their entire estate down to their offspring will be a burden, with six in 10 saying their beneficiaries already have enough money.
Wealthy respondents voiced fears that their children will not invest or spend their inheritances wisely, followed closely by worries that a particularly large inheritance could spark tension between siblings that could break out into legal disputes.
These concerns have led a majority (53 per cent) to increase the amount of money they have donated to charity as a means of simultaneously reducing the windfall their children can expect and curbing their inheritance tax exposure.
The poll, which was commissioned by Rathbones, found that a recent surge in income and a desire to contribute towards “making the world a better place” were largely behind parents’ increasing desire to put their estates towards charitable causes.
“We’re seeing more clients aiming to strike a balance between reducing their IHT burden, supporting good causes, and leaving an inheritance that doesn’t dampen their children’s ambition,” said Olly Cheng, financial planning director at Rathbones.
“For those concerned about the latter, contributing up to £2,880 a year into a child’s pension – topped up to £3,600 with tax relief – could be a good option. The funds remain locked until retirement (age 55, rising to 57 from 2028), allowing decades of tax-free growth.”
Inheritance tax raids
The government is increasingly turning towards various inheritance tax raids as a means of shoring up the UK’s delicate public finances. The threshold at which it kicks in has been frozen at £325,000 since 2009, meaning that a record number of estates are now liable to the unpopular tax.
As part of her maiden Budget, the Chancellor also tightened up several decades-old reliefs that were enjoyed by some estates as a means of generating revenue and making the framework more equitable.
Rachel Reeves announced that from April 2027 the Exchequer will treat pensions as part of someone’s estate when it comes to inheritance tax. She also closed the Agricultural Property Relief and Business Property Relief carve-outs that had allowed farmers and family business owners to pass down those assets free from inheritance tax.