Succession Planning for Intergenerational Success
Country estates tend to have family roots stretching back for generations. Understandably, parents would like the next branch of the family tree to be strong and fruitful.
We are seeing more and more clients releasing cash now, rather than sitting on wealth that their children will never see during their parents’ lifetime.
But what if most of a family’s wealth is locked up in the estate itself? We’ve helped many families navigate this quandary. Here’s a snapshot of some of pathways to explore.
If your property value has increased over past generations, how do you access that value so the next generation can benefit?
Tim Miles-Marsh comments:
“Equity release is increasingly popular. Put simply, it’s a way to release cash from your property while you still live in it. You borrow money secured against your home, and the mortgage is repaid from the sale of your property when you die, or if you move.
Lots of people take this route for a tax-free lump sum, particularly when it involves intergenerational wealth. I’ve worked on this with clients to help them gift money to their children and watch them enjoy greater security. Some help their children with a deposit for a first home, and the children make the mortgage payments with their own income. It’s an interesting trend”.
One of the main ways of doing this is through a lifetime mortgage. This can be used as part of inheritance tax planning – by reducing the net value of a property, the tax liability at death can be much lower.
Tim adds: “Right now, over 50% of UK mortgage holders are over 55. Homeowners over 65 have more debt than ever. But debt isn’t necessarily a bad thing, and it’s becoming increasingly acceptable later in life. Lenders may even lend to clients up to 90 years old where pension income is used for repayments”.
Reinvesting Through Commercial Loans
Some families may also consider an asset that generates a lower return, and use it to create more wealth down the line.
Tom Windett comments:
“Some assets generate a lower return, but they can still be used to create wealth for the future. By way of example, some clients look to utilise the equity in their estate to raise finance, and then reinvest the money into commercial property.
Many estates comprise let farmland, and clients understandably worry about how financially viable an estate will be for their children if agricultural returns remain low. Reinvesting to create capital growth or to generate an income could mean that future generations of your family might then be supported in a more creative and productive way than acting as an agricultural landlord could offer”.
Inheritance Tax Relief
Family wealth is often locked up in an estate, and traditionally, proceeds of an estate sale are often shared amongst children after parents have died.
However, 40% inheritance tax applies to estates worth over £325,000. This may well inhibit intergenerational succession planning. Increasingly, we’re seeing parents looking to safeguard their children from what is a sizeable levy. They would rather raise money now, accept some level of debt, and gift money while they are living.
This is where we work closely with highly skilled accountants who can further advise you. We intentionally network with those who have experience in tax relief for country estates. They can guide you on the optimum security structure for your situation, tax exemption on agricultural land, how to maximise your tax efficiency, and what allowances there may be on other aspects of your property.
Relationships, Trust, and Long-Termism
Family and relationships are the cornerstone of what we do. Each of our team has made life changes to improve their own family’s quality of life, and helping others do the same is close to our hearts.
We’ve accompanied client families on financial journeys spanning several years. Supporting them as their situations evolve and children grow, we are proud to be lifetime advisers for many branches of different family trees – parents, children, siblings, nieces…
They trust us with their family’s future wellbeing, and to us, that means everything.
We do not advise on equity release or ‘lifetime’ mortgages, but work with selected firms who are authorised to provide this advice for our clients.
The content of this article is provided for general information only and does not constitute professional or financial advice.
Want to know more about equity release or supporting the next generation? Tom and Tim welcome you to get in touch so they can support your family’s ambitions: