Over the next 20 years, around £5 trillion is expected to pass from older generations to younger ones in the UK. It is one of the biggest shifts of wealth we have ever seen. And most families are not talking about it.
On a recent episode of Keep the Change, Tom sat down with Tim, one of our financial advisers at Octopus Money, to talk about what this really means for families. We dig into inheritance tax, care costs, and how to have the conversations most families avoid.
This article is for general information only and is not personal financial advice. Tax rules can change and the impact depends on your individual circumstances. If you’re unsure what’s right for you, it’s worth getting personalised advice.
What is the Great Wealth Transfer?
In simple terms, it is the huge amount of wealth built up by parents and grandparents that will, over time, pass down to their children and grandchildren.
This has always happened. But two things have made it much bigger this time:
- Rising property prices over the last few decades.
- Long periods of strong investment growth.
Together, they have created what Tim describes as a “tidal wave” of assets sitting with older generations. In total, around £5 trillion is expected to change hands in the UK over the next couple of decades.
But that headline number hides an important truth.
A lot of this wealth is concentrated at the top. Some families will inherit a lot. Many will inherit little or nothing.
What form is this wealth actually in?
For most people, it is not piles of cash.
It is usually a mix of:
- Property
- Pensions
- ISAs and investments
- Some cash savings
And this is where things are getting more complicated.
From April 2027, most unused pension pots are set to be brought into the scope of inheritance tax. That is a big shift. Historically, pensions have been one of the most tax-efficient ways to pass on money, often sitting outside your estate altogether. That long-standing advantage is going away. For many families, this means pensions will now need to be thought about in exactly the same way as property, ISAs, and other investments when it comes to inheritance tax planning.
So even people who feel “comfortable” can be caught out by how their assets are structured.
The value of investments can go down as well as up, and you may get back less than you invest.This is based on current legislation and announced policy, which could change in future.
The big tension nobody likes talking about: care costs
Here is the uncomfortable bit.
On the one hand, younger generations are increasingly relying on inheritance to hit big life goals. Over half say it is the only way they think they will ever buy a home. On the other hand, older generations are looking at the cost of care and thinking: “What if I need this money myself?”
A decent care home can easily cost £60,000 to £80,000 a year. Sometimes more. Nobody knows:
- If they will need care
- When they will need it
- Or for how long
That uncertainty changes everything. This is why many parents and grandparents stay quiet. They are not being awkward. They are being cautious.
Is it risky to plan your life around an inheritance?
Short answer: yes. For three reasons:
- There are no guarantees. Care costs, health, and life in general can change the picture completely.
- The amount is uncertain. Tax rules and circumstances can shift.
- The timing is unknown. Inheriting money at 65 does not help you buy a house at 30.
That does not mean inheritance should be ignored in planning. But it should not be treated as a certainty.
Can you give money away?
There are rules about how gifts are treated for inheritance tax. But there is no law stopping you giving money away.
Some key points, very simplified:
- You can give away £3,000 a year (or £6,000 if you didn’t use last year’s allowance).
- Couples can double that.
- You can also give small gifts of £250 to different people.
- Regular gifts from income can be especially powerful and can fall outside your estate immediately, if done properly.
- Larger one-off gifts usually fall under the “seven-year rule”. If you survive seven years, they are generally outside your estate.
This is where advice really matters. The details and the paperwork are important to make sure it’s done correctly.
Tax rules can change and the exact impact will depend on individual circumstances.
The real problem: nobody talks about it
This is the heart of the issue. Most families are guessing what might happen, avoiding awkward conversations or quietly worrying in opposite directions.
Tim has a simple framework for this: PDA
- Plan. What are you actually trying to achieve?
- Discuss. With your partner. Your family. Possibly an adviser.
- Advice. Get proper help to avoid expensive mistakes.
An adviser can act as a neutral third party. That makes these conversations much easier for many families.
And one important reminder from Tim:
“The first priority is always making sure you are okay. Not your children. Not your grandchildren. You.”
Anything you pass on should come from a position of security, not fear.
Want to talk it through?
If this is something you want help thinking through, that is exactly what we do at Octopus Money. And if nothing else, let this be the nudge to finally have that conversation.
