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It’s a funny thing, an inheritance – a massive financial windfall which typically arrives after the death of somebody you love. While welcome, inheritances aren’t really something to celebrate.
There is another reason you should be careful with them. Relying on an inheritance is like playing Russian roulette with your future.
Inheritances are being squeezed, and many beneficiaries will get less than they expect. Wealthier families will be passing on £50,606 less in future, as the average inheritance is set to fall from £124,676 today to just £74,070, according to new research from St James’s Place.
Most of us won’t even get that much. What’s going on?
1. The taxman takes more than ever
The amount HM Revenue & Customs generates in inheritance tax (IHT) has almost doubled in the last seven years to £5.2bn. The main reason is that the IHT nil-rate band has been frozen at £325,000 since 2009, while house prices and stock markets have soared. This has offset the benefits of the new main residence allowance, which lets families pass on the value of their family home to children and grandchildren.
It could get much worse. Jeremy Corbyn’s Labour Party has pledged to introduce a new ‘lifetime gift’ tax allowance of just £125,000, with anything above that subject to income tax. This would triple the IHT take to around £15bn.
Then there’s another issue…
2. People are living longer
Despite a recent blip, life expectancy is climbing. People can now be retired for 25 or 30 years and will need to squeeze every penny out of their pensions. The more they spend on themselves, the less they can leave behind.
Even if you do get an inheritance, you may have to wait until your 50s or 60s.
Also, the baby boomers like having fun and want to live the retirement lifestyle. That’s your inheritance they’re spending on gym memberships and cruises. Sorry.
Growing numbers are turning to equity release to fund their final years, which effectively involves raiding your inheritance, spending the equity wealth in their property today rather than leaving it for you tomorrow.
There is even worse news…
3. Social care could take the rest
Successive governments have flunked the social care crisis, because they know that any solution is ballot box poison. This means we are left with a system where local authorities will not fund your long-term care costs until the value of your total assets, including your house, has fallen below £23,250. They will not pay the full cost until your worldly wealth shrinks below £14,250.
Annual nursing home costs range from £26,988 and £45,552, depending on the level of care and where you live, according to LaingBuisson. Given the huge expense, your inheritance could deplete very quickly.
And all this means…
You can’t, therefore, rely on an inheritance to get you on the property ladder, fund your retirement or pay down those debts.
Luckily, there is one thing you can do about it: start investing for your own future, rather than relying on others to fund it for you. That way you can treat any inheritance as a bonus rather than a desperately needed bailout.
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