The Essence and Importance of Intergenerational Financial Planning

Tony Wickenden, Managing Director at Technical Connection, explains the essence and importance of intergenerational financial planning.

The importance of effective intergenerational financial planning to families and to adviser business is undeniable.

For parents and grandparents, knowing that their children and grandchildren have or can look forward to financial well being is a material contributor to their own peace of mind and feeling of wellbeing. For adviser businesses that seek and value longevity, having a strong relationship with the generations of a family beyond their immediate clients will be a material contributor to the sustainability, growth, and value of their business.

Intergenerational financial planning

So, let’s start with intergenerational financial planning for families. What are the core pillars of this intergenerational success? Essentially, it’s about building, preserving and then transferring wealth for and across generations. 

And if you can build, preserve and transfer tax effectively then you will be even more likely to optimise the outcome.

Tax effective building of intergenerational wealth starts with building and preserving the wealth of your client – the wealth that will eventually be passed on (net of your client’s lifetime spending - and tax) to the next generation(s).  For most couples, a substantial (often the whole) amount of the wealth of the first of a couple to die will pass to the survivor of them before eventually passing down to children/grandchildren.

It goes without saying that saving and investing tax effectively can substantially enhance net wealth. And if an adviser can deliver “Tax Alpha” (i.e., tax saving the comes from the know-how and expertise of the adviser) this will represent a substantial contributor to enhancing overall Advice Alpha - the overall improvement of an individual’s wellbeing through the interaction of an adviser.

Investing via pensions, ISAs and, beyond that, collectives and investment bonds can all contribute to the construction of a tax effective portfolio. And the tax saved contributes to a larger eventual inheritance as well, of course, as a more tax efficient life for your client.

Junior ISA (JISA)

Now, for parents and grandparents who want to do something more directly and specifically for their children and grandchildren there’s the Junior ISA (JISA) into which £9,000 per annum per child can be invested.  The JISA has to be started by a parent of the child being ‘saved for’ but once it’s been set up grandparents and others can contribute – subject to the overall per child contribution limit.

Over time, those contributions into a tax- free fund can really mount up. Never forget the power of compounding!

For those parents and grandparents who might be a little concerned over the fact that at age 18 the child becomes absolutely entitled to the JISA and can access the funds without constraint collective investments held in trust, they can also generate tax-free returns of income (within the dividend allowance and personal allowance) and capital gains (by regular careful use of the annual CGT exemption).  Yes, you need to do a little more work. Yes, you will need to register the trust under the Trust Registration Scheme, and yes, you will need to think carefully about the type of trust to use and its implications, but a trust-based answer to ‘fear of access’ does exist – whether you take it or not depends on how important control is.

Premium bonds

For those with capital to invest, then an international single premium bond can represent a tax simple efficient option.  No tax during the ‘investment period’ and the ability to use the ‘child’s’ personal allowance, nil rate starting band (£5,000) and personal savings allowance (£1,000) to facilitate tax efficient withdrawals after age 18.  Useful to help fund the ever-increasing costs of higher education or perhaps help with a deposit for a first home. There’s no doubt that perhaps, more than higher education costs (there are ‘student loans’ after all), a desire to help the next generation ‘onto the property ladder’ is a strong motivator for parents and grandparents.


For those parents and grandparents really committed to the long term financial good health of their children and grandchildren, let’s not forget the pension.

A contribution of £2,880 each year - topped up to £3,600 courtesy of ‘at source’ basic rate relief - can really deliver long term benefits.

For example, just a single contribution of £2,880 (topped up to £3,600 by HMRC, made on the birth of a child) would (at 5% per annum growth net of charges) grow to £117,000 by the time they were 65.

Informed advice can of course really help when it comes to maximising the amount of the intergenerational transfer.


Once you are happy that you are well provided for with accessible capital and income, thoughts can turn, especially in advanced years, to estate preservation and transfer.

Straightforward lifetime gifts are extremely effective. Subject to taking care over any adverse CGT implications related to lifetime gifts or realisations to gift cash, gifting and surviving seven years is extremely effective.

The main impediments to lifetime gifting for most are requirements of control, flexibility and access. 

Investing in investments that qualify for business relief after two years overcomes all these problems, but care needs to be given to risk and liquidating of course.


Trusts are a great way to retain control though and through Loan Trusts and Discounted Gift Trusts the would-be donor can retain, respectively, access to original capital and regular ‘income’.

Where the main assets are residential property and registered pensions it can sometimes be worth considering an appropriate form of lifetime mortgage as a means of releasing capital to give or as an alternative to drawing funds from a tax efficient registered pension.  In both cases (making a gift and facilitating an alternative source of funds as ‘income’) an IHT deductible debt on the property would be created. There are many ‘moving parts’ to consider toarrive at a decision, including interest rates and the availability of the residence nil rate band, and detailed calculations and comparisons are essential.  It doesn’t work for everyone, but it can for some.

To the extent that an IHT liability remains after any gifting strategy is implemented or to the extent that an individual wishes to create or enhance a legacy on death (or the death of the second of a couple to die) then let’s not forget the extremely powerful role that an appropriate life policy in trust can play. The premiums will almost certainly be exempt, and the sum assured paid out tax free. Flexibility over who receives the funds, if that’s required, can be delivered through the means of a discretionary trust.