- Jeremy Hunt has been the first to mention inheritance tax in the election campaign, but he’s unlikely to be the last.
- One in six people said that a party promising to cut inheritance tax would be more likely to win their vote, while one in eight said they would be less likely to vote for a party pledging an IHT cut.
- If we reach old age with a significant sum in the bank, only a third of people would spend it on improving their lifestyle (31%), and just 6% would blow it on having fun.
- One in five (18%) would hang onto the cash in case they need it later. Older people are far more likely to say they would do this.
- 15% would pass the cash on during their lifetime, while 11% would hang onto the money to leave an inheritance.
- Leaving cash during your lifetime allows your family to make the most of things like JISAs and LISAs.
All figures from a survey of 2,000 people by Opinium for Hargreaves Lansdown, April 2024.
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“So far, the election campaign hasn’t delivered any absolute pledges on inheritance tax, but we’ve had breadcrumbs from Jeremy Hunt, and the Conservatives may well be baking something up in the manifesto. In the meantime, for those who reach older age with plenty of cash in the bank, it raises the question of what they ought to do with it.
We asked people what they would do in this position, and the most common answer was to spend it as they go along, followed by hanging onto it just in case they need it later. For some, these will be the most sensible approaches, but for others it’s a missed opportunity.
The options
The right answer depends partly on your broader finances. If you’re sitting on this sum because you’re scrimping and saving, then the most sensible approach is to spend at least some of it as you go along, on improving your lifestyle. When we asked people what they would do with the money, this was the most common answer – given by around a third of people (31%).
However, if you’re making this decision in your late seventies or eighties, then arguably you’ve left it a bit late, because you might have been cutting back for years, when you had plenty of cash to enjoy the retirement you deserved. It’s why it’s so important to weigh up all the options when you retire, and consider getting advice.
If you’re concerned about your health, or that there’s nobody to look after you if you need more support, then care costs will be foremost in your mind. It’s one reason why one in five people would hang onto the cash, just in case they need it later. Older people are far more likely to say they’ll take this approach – including 27% of men aged 65 and over and 24% of women of the same age.
This can be valuable, and one option that works well is to ringfence some of the money in a defined contribution pension, in case you need care. However, if you’re sitting on a property, money in your pension and cash in the bank, think carefully whether you’re likely to need it all to pay for care, or whether you could afford to spend some of it now on improving your life – or that of those around you.
More than one in twenty people would spend the cash on having fun. If all the other bases are covered, then there’s absolutely no reason why not. This is your money, and is meant to be spent on whatever works best for you.
Giving it away
One in four people, however, will look beyond their own needs, to those of their broader family. Some 15% would pass the cash on during their lifetime, while 11% would hang onto the money to leave an inheritance. Wanting to leave a legacy is particularly common among men aged 65 and over (15%). Either approach has the chance to make a significant difference to younger generations, but if you’re holding out to leave an inheritance, it’s worth considering whether you could pass the money on sooner rather than later.
The survey findings show just how appreciated the money would be. Almost a third (30%) of those aged 18-34 said that if they had the cash in old age, they’d give it away before they died – partly because younger people know how much difference an early legacy would make to their own lives.
If you take this approach, not only will you be around to see your family enjoy the money, it could also have inheritance tax benefits. If you give them a lump sum of more than the annual gifting limits, it becomes what’s known as a ‘potentially exempt transfer’, which falls out of your estate after seven years have passed. If you have a potential inheritance tax bill, then by starting the clock sooner rather than later, you could cut the amount of tax paid on your estate.
It also gives you more control over how the money is given. You could, for example, put it into a stocks and shares Junior ISA for a child under 18, so you know the money will be invested carefully, and tied up until they’re old enough to make sensible choices with it. For those aged 18-39, you could encourage them to put £4,000 a year into a stocks and shares Lifetime ISA. This would help them build a deposit for a first property, or for retirement, and take advantage of a 25% bonus from the government at the same time.”
