Thinking Intergenerational through all 3 phases of the financial planning process

Tony Wickenden

Learning objectives

Reading and understanding this article will enable you to:
  • Appreciate the importance of taking an intergenerational approach to financial planning to achieving good client outcomes and good outcomes for the development and value of your business
  • Be fully aware of and able to embed current tax awareness into the creation of intergenerational financial plans
  • Be confident in the creation and delivery of client appropriate strategies to reduce and provide for inheritance tax so as to maximise intergenerational transfers 

If you are an adviser with clients who have families then there are two great reasons to adopt and embed, wherever possible and appropriate, an intergenerational approach to financial planning strategy.  The first is that it will usually help your clients to achieve an objective that is important to them – to protect the wealth that will pass down to the next generation.

The second is that it will usually enhance the longevity and value of your business – through its cross generational relationships and greater certainty of business flow and fund retention. Potential buyers/investors love and value predictable , stable revenue flows.

It stands to reason (doesn’t it?) that where an adviser has a relationship with the spouse or partner of a “main client” and with the next generation too it will be almost a “given” that retention of influence over funds/investments left on the death of the main client has a better chance of continuing.

Of course, not every client will want to engage other family members in a discussion of their finances.  This is understandable but with suitable coaching and explanation of the benefits this barrier can often be overcome.

Of course, having the relationship with your client’s  spouse or partner and through the generations is one thing but self-evidently, it needs to be combined with the delivery of a great outcome in building, preserving and transferring assets tax efficiently.

Often an “intergenerational” planning discussion focuses on reducing inheritance tax so as to maximise the amount being transferred.  And that’s understandable but a truly successful intergenerational financial plan will be founded on giving thought to the “holistic” intergenerational objective from start to finish of the financial planning “journey”.  It will look to incorporate recognition of the needs of the “primary client” and that of their spouse or partner and the  next generation.  While primary focus should always be given to the needs of the main client it will also be possible to see how the “core plan”  can be nuanced to recognise (without compromising the primary needs) the importance of preserving as much wealth as possible to pass onto the next generation.

This kind of holistic thinking should be deployed throughout all three phases of the financial planning process.

  • Accumulation
  • Decumulation  and
  • Preservation and transfer

And throughout the process paying attention to embedding as much tax efficiency as possible will contribute to the desired outcome.

Its obvious really.

In the accumulation phase look to maximise front end tax relief when it’s available and minimise tax on income and capital gains on invested funds.

In the decumulation phase look to minimise tax on what you draw (by using exemptions, allowances and tax freedoms related to investments) and ensure, as far as possible, that undrawn funds remain in the most tax efficient environment.

When funds are transferred, ensure that as far as possible, they can be transferred free of (or with as little as possible) inheritance tax.  And lets not forget how effective life assurance protection plans in trust can be in creating or enhancing an inheritance.

So let’s look at each of those phases in a little more detail.


Thinking “intergen” aligns with tax best practice for the main client in relation to their own investments. Taking full advantage of the tax “no-brainers” (Isas, pensions and where appropriate VCT/EIS) will all help to maximise returns through tax efficiency. And the greater the accumulated (untax diminished) funds the better it is for the next generation too.

Smartly using the dividend tax allowance and the CGT exemption to deliver tax free income and gains from collective investments will , of course, remain important . However ,given the frozen tax thresholds and reducing dividend allowance and CGT exemption, the threshold above which investment bonds should be considered for their tax management and tax deferment qualities will materially reduce .

As well as investing generally in a “tax smart “ way , if there is scope (and desire) to invest specifically for the next generation then it’s definitely also worth considering.

The £9,000 p.a. that can fund a junior ISA set up by parents but contributed to by anyone is definitely worth considering.  The alternative of collectives held in trust has the baggage” of the Trust Registration Service AND the reducing dividend allowance and reducing CGT annual exemption to weigh against it…despite the extra level of parental or grandparental  control over access it can deliver .

Of course giving thought to up to £2,880 p.a. being contributed into into a child’s pension, topped up to £3,600 by HMRC, is very worthwhile considering for those taking the long view.  This can be extremely valuable in years to come with so many deferring the start of pensions savings until far too late – understandable given the current financial challenges many are facing. The power of compounding remains as compelling as it always did.

For these children’s funding plans, JISA and pension, it will in many cases be the grandparents who are the instigators and “founders of the future fund” for their grandchildren.


A tax smart decumulation will contribute towards retaining more of the tax smart accumulated funds so that makes great sense right? 

Minimising tax on what you draw to serve your needs in whatever retirement means to you and preserving undrawn funds in tax effective locations (like pensions and ISAs – but especially pensions) can make a huge difference to the “inheritable pot”.

Most obviously for those investors with a range of assets in addition to their registered pensions it can pay to preserve funds inside the pension and draw from elsewhere. Why? Well because the income and capital gains from the funds remaining invested in the pension will be tax free ..and the pension fund will also be free of inheritance tax.

Drawing from other funds in a tax efficient way can also make really tax sense and minimise the diminishment of capital. To the extent you can reduce the need to provide for tax on what you draw then you will preserve more of the capital. Careful attention needs to be paid to maximising (through the entire family) use of the personal allowance, dividend allowance, personal savings allowance and the nil rate starting band. And of course all income from VCTs and ISAs is completely tax free .

Drawing down from a bond that has been held over a number of years can also deliver tax efficient funds .Top slicing relief and the 5% withdrawals can be extremely valuable in this respect.

Let’s not forget, what individuals will want to replace or supplement other income in whatever retirement means to them is money ..not necessarily natural income . So let’s not rule out drawing on capital using the CGT exemption and lower rates of CGT ( 10% and 20%) . Lets also not forget though the potential damage to capital that sequencing risk can bring if set amounts are withdrawn over time regardless of capital values. This issue needs careful consideration and management but drawing on capital if appropriate and with suitable risk management built in should absolutely not be ruled out.

Obviously , if there is a pension fund then there are the usual choices as to how to best draw down from it most tax efficiently .

Many will continue to work beyond what might normally be considered a “retirement date” continuing to exploit their so called “human capital” .By doing this there is a greater chance of maintaining  and growing financial assets by diminishing them less through drawdown.

Preservation and transfer

When it comes to the transfer of funds to the next generation (often via a surviving spouse or partner) then minimising inheritance tax is an obvious thing to strive for. To not lose 40% of what you have built up (on your death or that of your spouse or partner) of course makes sense.

Lifetime transfers are always worth considering so as to reduce the taxable estate on death and control and its helpful that where cash or investments are available to plan with, access for the donor can be facilitated through trust/financial products combinations.

There’s also the inheritance tax freedoms given by the protection of pension funds and investments  that qualify for for business relief.

Planning with the will  using trusts where  appropriate  and ensuring that, if possible, the residence nil rate band remains available is well  worth considering.

In short a great adviser ( sometimes through collaboration with a client’s other professional advisers) can contribute so much to intergenerational success through a wide range of lifetime and “on death through the will” IHT planning.

Added to this should be the use of appropriate protection in trust to tax efficiently create or boost the inheritance and/or to provide for the payment of IHT.

So our point is this  successful intergenerational planning is undeniably  materially contributed to by thoughtful ,appropriate inheritance tax planning but it is super charged by what precedes that through the accumulation and decumulation phases of the financial planning journey.

Its never too late to think “intergenerational” – for advisers and their clients.  Everybody wins when it’s done well and done over time. 

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