Family Finances - important conversations you should have with your loved ones

Aspira

0 Comments 26 April 2024

In Britain, we have a deep-seated aversion to talking about money, but there are signs that this is changing.

Experian reports that there’s been a recent rise in the popularity of “loud budgeting”, which basically means being open about your financial boundaries, among Gen Z and millennials[1].

Despite this, conversations about money between generations remain difficult for many. So much so that, according to Evolution Money, 20% of people would rather talk to their children about relationship problems, and 10% would rather talk to their parents about sex[2].

However, discussing money with your children, grandchildren, or parents can be essential to building and maintaining wealth through the generations and avoiding problems that may arise because of miscommunication or false expectations.

Though having these conversations is hard, they can be incredibly beneficial. Read on to discover five financial conversations you should have with your family.

Be open about your current financial situation

The cost of living crisis has been tough for many. STV News reports that 84% of those in debt cite the higher cost of living as a reason for these issues[3].

You or your adult children may have taken on debt, used savings, or reduced pension contributions to cover living costs in recent times.

Talking about this with your family can help you both support each other and set boundaries.

For example, if you have adult children or grandchildren who you are currently struggling to financially support, you may need to pause payments you make to them in order to ensure you’re able to meet your own needs.

Instead of offering financial assistance, consider alternative ways you could help out. For instance, if your adult children are struggling with childcare costs or other living expenses, perhaps you could offer to look after your grandchildren a few days a week or help out with odd jobs like DIY, gardening, or a spot of cleaning.

Set clear expectations when helping children and grandchildren onto the property ladder

Giving gifts now may mean you can help your young adult children purchase their first home.

This may be more important now than it has been for previous generations. House prices have increased substantially over the past 40 years, making it harder than ever for younger generations to start their property journey.

In fact, the Office for National Statistics reports that in 2023, first-time buyers could expect to spend 8.3 times their annual earnings buying a home[4]. According to data from The Building Societies Association, in 1983, that number was just 3.4[5].

Due to this decline in affordability, the Guardian expected that in 2023, nearly half of all house purchases involving buyers under the age of 55 would include support from relatives[6].

Discussing how you intend to help younger generations can enable them to plan their first steps on the property ladder.

You could share with them how much you are willing to contribute, whether the money is a gift or a loan, and, if it’s a loan, when you’d expect it to be paid back.

With this information, your children or grandchildren can make realistic plans based on what they can afford. It could also help them to understand if they need to increase their own contribution and, if so, they can work to start boosting their savings.

Create clarity around inheritance

Discussing your financial situation can help younger generations understand how much they might expect to inherit.

A study by Zoopla found that 43% of people are relying on inheritance from their parents for future financial security[7]. Despite this, only 30% had spoken with their parents about how much they’re likely to receive.

This could end up in an unfortunate situation where, through a lack of communication, younger generations receive less inheritance than they’d expected.

If your children falsely assume that they are in line to receive a certain amount of inheritance, they may take on a large mortgage or fail to save sufficiently for retirement. Either way, they could find themselves in a difficult financial position later in life.

Discussing inheritance with your family can help younger generations create a more realistic financial plan for their future. It can take the guesswork out of their finances and help them avoid making harmful financial decisions based on incorrect assumptions.

Discuss gifts and other ways to reduce Inheritance Tax liability

The Inheritance Tax (IHT) nil-rate band of £325,000 has been frozen since 2009 and will remain so until 2028. Additionally, the residence nil-rate band has stayed constant at £175,000 since 2020. This has resulted in ever more families facing IHT bills. Indeed, FTAdviser calculated IHT receipts will hit a record £9.7 billion by 2028/29[8].

In light of this, it’s now more important than ever for your family to discuss ways to mitigate potential IHT charges through methods such as gift-giving.

All gifts are exempt from IHT if the giver lives for seven years after giving the gift. If the giver dies within seven years, a reduced “taper relief” rate of IHT may be applied.

Additionally, you can give large gifts of up to £3,000 a year, and as many “small gifts” of £250 or less as you like. These, and certain wedding gifts, will instantly fall outside of your estate for IHT purposes.

Finally, the “gifting from income” exemption allows you to give potentially unlimited gifts tax-free.

To fall outside of your estate these gifts:

Must be made from surplus income
Must be part of your normal expenditure
Cannot affect your own quality of life.

Discussing gifting strategies with your family can help you to build and execute a tax-efficient plan to pass wealth down through the generations.

Working with a financial planner can help you understand all your options and write up an estate plan that works for you and your beneficiaries.

Communicate your future wishes as you age

These conversations shouldn’t only centre around the future of younger family members; if you’re of an older generation, it’s important to discuss your future too.

You’ll have thoughts about what you’d like to happen if you ever go into care, or when you die. However, many people never quite manage to communicate these wishes to their loved ones.

Indeed, SunLife reports that 54% of people don’t know if their loved ones want to be buried or cremated, and 19% don’t know about any of the funeral wishes for their loved ones[9].

By having these difficult conversations now, you could ensure your wishes are carried out and leave your loved ones happy in the knowledge they’re giving you the later-life care or send-off you want.

Get in touch

At Aspira, our expert financial planners can help you navigate these difficult conversations, giving you the confidence that you’re building the best financial future for your family.

Email info@aspirafp.co.uk or call us on 0800 048 0150 to find out how.

Risk warnings

The information contained in this article is based on the opinion of Aspira and does not constitute financial advice or a recommendation for any investment or retirement strategy.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning.

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.

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[1] https://www.experian.com/blogs/ask-experian/what-is-loud-budgeting/

[2] https://www.evolutionmoney.co.uk/news/why-do-brits-avoid-talking-about-money

[3] https://news.stv.tv/scotland/thousands-forced-into-debt-due-to-cost-of-living-crisis-analysis-from-citizens-advice-scotland-finds

[4]https://www.ons.gov.uk/peoplepopulationandcommunity/housing/bulletins/housingaffordabilityinenglandandwales/2023/previous/v1

[5] https://www.bsa.org.uk/getmedia/7b7e8048-12d6-4c47-b321-c22a66ccf7f0/House-price-earning-ratio-PUBLISHED.xls

[6] https://www.theguardian.com/money/2023/aug/28/bank-of-family-to-help-a-record-number-of-uk-house-buys-this-year

[7] https://www.zoopla.co.uk/press/releases/half-of-brits-admit-they-have-checked-what-their-parents-home-is-worth-with-over-four-in-ten-admitting-they-are-relying-on-an-in/

[8] https://www.ftadviser.com/your-industry/2024/03/21/iht-receipts-on-track-to-deliver-9-7bn-by-2028-29/

[9] https://www.sunlife.co.uk/funeral-costs/

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