New research from Direct Line Life Insurance has revealed that over 6.9 million parents percent) have given their children ‘their inheritance’ early, to try to reduce the amount of inheritance tax payable on their estates. This amounts to a total of £227 billion, at an average of £32,920.10. A further 6.5 million (19 per cent) parents have not yet transferred assets to their kids but plan to do so in the future to avoid a hefty inheritance tax bill.

Of those who haven’t considered giving their children their inheritance early, 34 per cent said they did not have any assets to transfer, while more than one in ten indicated that they might, but that their children were presently too young to be gifted money. A further 13 per cent were concerned that they might need their assets in retirement.  One in eight parents (13 per cent) believed their children should not be provided for while they are still alive, while nine per cent did not know that gifting money could reduce their inheritance tax bill when they pass away.

The increasing number of broken marriages are also making inheritance planning even more complicated, with divorcees transferring assets to named beneficiaries early to avoid them going to their new partner if they remarry. In fact, one in seven (15 per cent) divorcees has already transferred assets to their children or has placed them in trust, gifting on average £16,602.80. Another 37 per cent of divorcees plan to transfer money in future if they remarry.  Almost a quarter of divorced parents (23 per cent2) made these transfers because they are concerned that their new partner would not provide for their beneficiaries in the event of their death.

Jane Morgan, Business Manager at Direct Line Life Insurance, said “Worrying about what happens to your children when you’re no longer around is natural for any parent and it is understandable that people want to maximise the money they leave behind. However, it is important that people planning to transfer money understand the tax implications that a gift might give rise to.”

“With almost one in ten (nine per cent) parents placing their assets into trust, this is something people should also consider when arranging their life insurance3. Placing a life insurance policy into a trust4 could avoid payments being included in inheritance tax calculations. However, despite this, just 20 per cent of people with a life insurance policy have placed this into trust and almost a fifth of those with a life insurance policy admit they did not know this was an option.”

Philip Munro, Partner at law firm Withers LLP, said “Lifetime gifting is a strategy that can be used to reduce a future potential inheritance liability and will appeal to many parents who want to provide for their children, particularly as they may be struggling to access the current housing market.  However, there can be inheritance and capital gains tax implications in the making of gifts and so parents should consider taking tax advice.

“Where individuals are taking out life insurance it would often be recommended that these polices be held in trust to avoid their proceeds being taxed on the death of the life insured,”

Parents in London are the most likely to have transferred assets to their children, with more than two in five (41 per cent) awarding their kids a ‘half-time inheritance,’ averaging a huge £119,207. The capital is followed by the North East (30 per cent) and Yorkshire and Humberside (19 per cent). On the other end of the scale, only one in nine (11 per cent) East Midlands-based parents has taken this tax mitigating measure.  Welsh parents have on average moved the lowest amount at just £9,009.

Table one: regional breakdown of ‘half-time inheritance

Region Percentage of parents who have transferred assets Average value of assets transferred
London 41 per cent £119,207.00
North East 30 per cent £40,124.70
Northern Ireland2 28 per cent £38,166.80
Yorkshire and Humberside 19 per cent £29,885.60
South East 18 per cent £20,376.30
East of England 17 per cent £22,103.30
West Midlands 17 per cent £16,379.30
Wales 17 per cent £9,009.00
North West 16 per cent £15,403.10
Scotland 15 per cent £12,495.20
South West 13 per cent £23,157.60
East Midlands 11 per cent £20,431.40
UK average 20 per cent £32,920.10

Source: Direct Line Life Insurance