The UK’s baby-boomers are set to pass on more than £5 trillion to the next generations over the coming 30 years in what has come to be known as the ‘Great Wealth Transfer’. However, a lot of this hard-earned wealth could be lost if families get caught up in costly disputes or find themselves paying a hefty 40% of the legacy in inheritance tax. So how can your family reap the full benefit from the money coming down through the generations? In this series of articles focusing on the implications of the Great Wealth Transfer and how you can manage them, Jonathan Gain, CEO of Stellar Asset Management looks at how a Family Trading Companies can provide the answer.
You have a house. You have some savings. You might have other assets like buy-to-let property or a thriving business. However, have you sat down with your loved ones to discuss how to pass on this wealth in the fairest and most efficient way?
Like most Britons, the answer is likely no. Indeed, less than half of UK adults have made a will, let alone talked about the inheritance with their children, grandchildren and other beneficiaries. The time that people finally do initiate these conversations is often when they have had a health scare or reach advanced old age. By then, the options and time to plan may be limited.
The big taboo
Why is there such a taboo about discussing legacies? Many people associate these kinds of conversations with terminal illness and death. Some people might also shy away from discussing bequests for fear it could cause family arguments or the potential beneficiaries might avoid creating their own wealth in anticipation of a substantial inheritance.
Independent financial advisers often share this reluctance to talk about inheritance. Good advisers are now helping their clients plan for their later years rather than just promoting particular financial products. Changes in the training for chartered financial planning qualifications have cemented this shift in approach. However, few advisers have taken the next step by initiating conversations about wealth transfer and engaging with the wider family. Research indicates that advisers are missing out on a huge amount of funds under management as a result of this failure to reach out to younger generations.
Missing the mark
So what are the possible solutions to these wealth transfer dilemmas? Google inheritance tax and you will almost invariably be prompted towards some form of trust. However, the IHT exemption on a trust only kicks-in after seven years, by which time it could be too late.
Setting up a trust can also entail a huge amount of paperwork and legal fees, while locking in the capital and forcing you to relinquish control over its management. From a family perspective, the one-size-fits-all nature of a trust makes it difficult to tailor it to the demands of different generations and individual family members.
The alternative of a family investment company would allow you to retain control over the assets. However, the inclusion of investments such as equity and property means that the portfolio would still be liable for IHT.
Other commonly promoted options include taking out life insurance to cover the IHT liabilities. However, you would still need to factor in the premiums, while the pay-out could itself be liable for IHT. Moreover, life insurance does not address the central question of how to transfer the wealth in a way that takes account of the family dynamics and reflects the needs and wishes of different family members.
Flexible, accessible and tax-efficient
A lot of these options come with significant downsides – as an alternative, it is worth considering Family Trading Companies. Under this option, each beneficiary would be the sole shareholder in a company set up to meet their particular life goals and investment preferences.
As with a family investment company, shareholders retain full control over the portfolio rather than passing it over to a trust. However, by investing in assets that qualify for Business Relief such as hotels, housing development and commercial forestry, the family trading company is currently exempt from IHT after just two years. From April 2026, 100% IHT relief will only be available on qualifying assets valued at up to £1 million, with the remainder attracting relief at 50%. However, the vast majority of Family Trading Companies assets would be below this £1 million ceiling.
Other key benefits include the investment security of being backed by the tangible assets of land and real estate, while supporting job creation and sustainability goals within the UK economy. It also provides clarity to beneficiaries about what funds are held where.
In other articles, we will be digging deeper into the challenges and opportunities opened up by the Great Wealth Transfer and how you and your family can manage the risks and reap the benefits.
