‘Bank of Mum and Dad’ continues to fuel Scottish property market

  • Parents and grandparents are choosing to pass on wealth early to help children get on the ladder
  • Over a third (35%) of High Net Worth Individuals (HNWI) and business owners in Scotland have met a financial planner for guidance on passing on wealth
  • A third of individuals have spoken with their loved ones about how they will distribute their assets
  • But only 2 in 10 (19%) have created a will

The ‘Bank of Mum and Dad’ continues to fuel the Scottish property market as parents and grandparents choose to pass on wealth early to help the younger generation get on the ladder according to research by Rathbone Investment Management.

Home ownership continues to remain out of reach for many young people, with house price growth increasing by 6.9% across Scotland in the last twelve months.[2] The COVID-19 pandemic has also caused financial difficulty for many and has exacerbated the challenges facing young people wishing to get onto the ladder. The ‘Bank of Mum and Dad’ has therefore stepped in to support.

Rather than passing down via inheritance with the risk of a large tax liability, 28% of those surveyed have or are considering passing on their wealth early in order to help children and grandchildren with property purchases or other significant expenses. 29% of individuals have put money into a trust for their children or grandchildren, and a quarter (26%) have contributed to their university expenses.

The decision to pass wealth down early is partly down to a larger trend over the last year that saw many look to get their financial affairs in order. Indeed, with national lockdowns and continuing social restrictions in place, many people have had more time to plan ahead and explore ways in which they can put a financial plan in place.

Over a third (35%) of Scottish High Net Worth Individuals (HNWI) and business owners surveyed have met a financial planner for guidance on passing on their assets.

More widely, a third of individuals (33%) have spoken with their loved ones about their financial plans for the future. However, only a fraction of people have made these plans official. Indeed, just two in ten surveyed (19%) have made a will.

Kindar Brown, senior financial planner at Rathbone Investment Management: “COVID-19 has caused many individuals to think about how they might best support their loved ones financially. The difficulty of getting onto the property ladder has called for the ‘Bank of Mum and Dad’ to step up and provide a helping hand.

“With all the events of the last twelve months, putting a financial plan in place has moved further to the front of many peoples’ minds, highlighted by the uptick in enquiries to speak with a financial planner.

“Taking the time to review your financial affairs now and make sure everything is in order can provide peace of mind that your loved ones will be protected, and your wishes met, should the worst happen.

“As part of your plan, you could for example consider whether passing on wealth during your lifetime rather than within your will would make sense for your circumstances.

“If you won’t have need of the money in the future, then helping your children or grandchildren with those important – and often costly – life stages could be an effective and tax-efficient route to take, depending on your situation.”

Things to consider when creating a financial plan

Establish a financial plan

A good financial plan starts with aspirational goals – it is about focusing on what is important to you and what you want to achieve. It can help you determine whether you are on track to meet your goals and help you envisage your financial future.

You might want to plan for retirement and understand how much you will need to afford you the lifestyle you wish or perhaps you are concerned about the costs of long term care or making sure your family are provided for in the event of your death? Once you understand how much you require to meet your own lifestyle goals, you can identify how much you can afford to gift to your family during your lifetime without leaving yourself financially vulnerable.

A financial planner can guide you through the various aspects and help you put a plan of action in place. 

Make a will and regularly review it

Although creating a will may seem a little daunting, it’s a good place to start when looking to get your financial affairs in order. A correctly drafted will can ensure that your wealth is distributed to your loved ones as you wish and can prevent delays in doing so. 

It’s important to regularly review your will in order to ensure it reflects your current wishes. This is particularly important after life events like marriage, divorce and the birth of children or grandchildren. 

Consider whether you want to gift and how much

Once you’ve established your financial plan and your will has been drafted, you will have a better understanding as to whether making gifts to your family is affordable.  Gifting during your lifetime can be an efficient way to pass on wealth and help reduce the inheritance tax payable on your estate when you die.

There are a number of gifts you can make without paying tax including an exempt amount of £3,000 per annum and unlimited small gifts of up to £250 per person.

You can also of course gift larger amounts, however if you die within seven years of making the gift it may be liable to inheritance tax depending on the value of your estate

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davepickering

Edinburgh reporter and photographer