Sam Brodbeck Personal Account

We are doing inheritance all wrong – don’t wait until it’s too late

Much of financial planning is based on delayed gratification. Lock your money away in a pension, Isa or savings account and you will reap the rewards of tax reliefs and compounding interest.

But “one in the hand beats two in the bush” is a better maxim – at least when it comes to those who will, one day, receive an inheritance.

Despite the enormous growth of the Bank of Mum and Dad, many people still get the bulk of their inheritance too late for it to make a meaningful difference financially. Christine Benz, of investment research site Morningstar, argues that the very best savers find it difficult to switch from diligent saving to diligent retirement spending.

It’s just too hard to give up frugal ways. They are (quite rightly) proud of ensuring their financial security and worry that they will need vast sums for care. And, of course, they want to leave money for children, grandchildren and others. But, in many cases, retirees end up being recklessly conservative.

Ms Benz says a smarter strategy is to give away larger sums when it has the biggest effect on the recipients, that is, far earlier than typically happens. In

America, the average age people inherit is 51, far older than most people get on to the property ladder and start raising a family. In Britain, the wait ( for the average millennial at least) is even longer – at 61, according to a 2017 study from the Resolution Foundation.

The average millennial inheritance is forecast to be the biggest in history. But the fact remains that in many cases inheritance comes too long after many of life’s biggest moments are in the rear view mirror. Paying off a student loan could be life changing. The terms of loans taken out this academic year are far worse than before. Loans are now written off after 40 years, rather than 30, so many graduates will end up paying 50pc more on the same size loan than previously. Someone on £50,000 a year will pay about £200 a month in loan repayments, akin to typical commuting costs. Imagine the difference lifting that burden would make.

What’s worse, if large sums are left unspent at death (and are not held in a pension) the taxman takes a 40pc bite in inheritance tax.

Morningstar’s research suggests that a £1m portfolio could easily be worth £3m after 30 years, assuming you take 3.8pc a year in inflation-adjusted withdrawals. No wonder the Treasury has been reaping ever larger sums via death duties, now worth around £7bn a year.

Yes, you could stuff your pension to avoid inheritance tax – if you are confident a future government doesn’t change the rules – but giving away money during your lifetime is the best way to make sure HM Revenue and

Customs doesn’t snaffle it. What’s more, there’s a hell of a lot more enjoyment in helping someone while you are still alive to see it.

Could next month’s Autumn Statement see the end of inheritance tax? This is a party desperately looking for red meat to throw to wavering Tory voters. Whether or not the death duty burden is lifted, the aim should not be leaving as much cash as possible when you pop your clogs.

Far better to dish it out now and enjoy the gratitude of those who could really use the money today.

‘The very best savers find it difficult to switch from diligent saving to diligent retirement spending’