"One way to ease the pressure on the younger generations is to allow wealth to filter down more easily."
Under current inheritance rules, the annual gifting allowance, or the amount individuals are allowed to give away up tax free, is £3,000 a year.
However almost 60% of the 17.2 million over 55s want to gift more than the annual gifting allowance during their lifetime and 71% want to pass on their wealth during their lifetime or both during their lifetime and on death.
The annual IHT gifting allowance has remained unchanged since 1981. Had the annual allowance tracked inflation, it would be permissible to gift £10,932.20 per tax year in 2017, according to the Bank of England inflation tracker.
This allowance is being looked at as part of the upcoming review into Inheritance Tax by the Office of Tax Simplification.
Old Mutual Wealth is urging the government to reform the tax system, which it says discourages individuals from helping their family members financially while they are still alive. If the allowance was updated to £11,000 it could immediately unlock £82.6 billion for lower generations.
Rachael Griffin, tax and financial planning expert at Old Mutual Wealth, commented: “The tax system has, in essence, encouraged people to pass on wealth when they die if they want to avoid tax for certain. While 30 years ago that may have made sense, in 2018 people are living longer and retired households are at historic highs in terms of the wealth they hold relative the working-age population. Plus, £3,000 won’t go far these days, but £11,000 could give children or grandchildren the necessary money for annual school or university fees.
“Intergenerational inequality is a substantial problem in the UK and one that Theresa May promised to tackle in her party manifesto. Over the past few weeks several reports have illustrated how a deadly cocktail of rising tuition fees and unaffordable housing have led to a generation of graduates who, when first entering the job market and adulthood, may rightly feel their outlook is bleak.
“One way to ease the pressure on the younger generations is to allow wealth to filter down more easily. We know there are lots of people that would like to pass wealth down to their families, while they are still alive. Increasing the IHT gifting annual allowance would encourage some of that money to cascade down the chain, giving a welcome financial boost to younger generations, particularly those trying to get on the housing ladder.”
