Many of us want to pass our wealth on to the next generation. But what do we need to consider to do this effectively – to maximise the benefits for our families while managing the balance between tax efficiency and control?
Source: Netwealth, £500,000 invested in a RL 5 pension for 10 years then withdrawals of £2,000 gross per month inflated by 2% per annum for 30 years.
Simulated historic and future performance numbers should not be relied upon as an indicator of future performance.
- Inflation. Although inflation is relatively subdued now, the long-term effect can be consequential. For example, £1,000 at the start of 1990 was only worth £488 at the end of 2019. (Source: ONS, Netwealth.) Our own unique inflation rate is also likely to be meaningful and is driven by how much we spend as we get older.
- How long we live. We are living longer and therefore we need more funds to pay for those extra years. For example, a 54-year old female has a 1 in 4 chance of living to 94 years according to the ONS – so we must ensure that our retirement pot is equipped to last longer than we may expect.
However, you can model for these factors above as well as the elements you do know such as your planned retirement date, target income and choice of risk level. Our powerful online tools can help you to get a clearer picture on how much you might need to fund your retirement.
The right mix of outright gifts and more complex structures will depend on your objectives and in many cases the level of assets you would like to pass on. When thinking about the trade-off between retaining control and tax efficiency one option is to start with more frequent smaller gifts. This allows you to see how the beneficiary behaves as well as allowing you to start an education process of explaining your desired purpose for these gifts.