Confession time: the author of this article is (probably just) a Millennial. Born in 1996 (the supposed cut-off year for the generation), I’ve spent years desperately trying to claw my way into the younger, cooler, less frequently derided “Gen Z” cohort. But it’s time to face the facts – I owned an Atomic Kitten cassette, I went on trips to Blockbuster, I even remember a time when you couldn’t use the internet when someone else was on the phone. I might not have been such a lost cause, had I been able to master even one TikTok dance.
Recent commentary indicates that Millennials (and likely Generation Z after them) are facing a unique set of issues unlike those endured by previous generations.
While more than 50% of “Baby Boomers” (those born roughly between 1946 and 1964) owned property by the time they reached the age of 30, the figure is closer to 30% for Millennials, with the average first-time buyer now aged 32. This is perhaps unsurprising, when house prices are around 14 times higher, despite a significantly slower rate of growth in the average wage within an increasingly complex employment market.
Found on the other side of this particular coin are those who opted to buy in the unprecedented conditions of the last few years, and now find themselves staring down the barrel of a likely drop in property prices. Put bluntly by Duncan Robinson in a recent article for The Economist, ‘Britons in their thirties are stuck in a dark age’ (5 January 2023), “Those who bought a house recently may be on the wrong side of a leveraged bet on the most expensive asset they will ever buy”.
But hold onto your oat-milk latte - there’s more bad news for Millennials keen to start a family. The same Economist article notes that British parents spend between a quarter and a third of their income on childcare - pipped narrowly to the post by Slovakia and Switzerland, the cost of childcare in the UK is among the highest in the world.
Robinson highlights a number of other striking statistics, particularly relating to the comparative benefit that the respective generations can expect to derive from the state. While a person born in 1956 will pay an average of approximately £940,000 in tax during their lifetime, they are expected to receive around £1.2 million in state benefits - giving a net benefit of £291,000 on average. Those born in 1996 are on course to receive less than half of that figure. This raises the question of whether there might have been a breakdown in a fundamental element of our “social contract” – the notion that we all pay into a system that looks after the elderly during our working lives, on the premise that we too will enjoy a comfortable retirement when the time comes.
The apparent advantages enjoyed by the Baby Boomer generation are underlined by the fact that one in four pensioners lives in a household with assets of more than £1 million (although it cannot be ignored that one in five still lives in poverty). Among Robinson’s closing remarks is the simple observation that “Merely waiting for inheritances to cascade down through the generations is a recipe for an unhappy society”.
This final comment reflects the concerns of many of our clients who have children or grandchildren within the Millennial age bracket. Far from engaging in the intergenerational conflict envisaged by Robinson and others, they are all too aware of the difficult conditions faced by the younger generations and want to use their wealth to assist them in “getting started”, or perhaps just getting a little more comfortable. That might be by providing an immediate injection of cash to act as a deposit for a first home, or alleviating pressure by making more regular contributions to living expenses (such as childcare costs).
Clients are increasingly departing from the more traditional view that wealth should be passed from one generation to the next upon death – not only are they content to skip generations and direct their wealth towards helping grandchildren (where children are already comfortable, financially), they are keen to do that during their lifetime, so that they have the opportunity to see their grandchildren enjoying the benefit of their support. Indeed, an increasing number of parents are seeking to redirect or revisit the timing of their own inheritance so that their children may benefit at an earlier stage.
There are a number of key considerations for individuals looking to offer financial assistance of this nature. Of course, it is essential that they evaluate their own long-term needs and ensure that any proposed gift is affordable before passing assets on to others. For many, however, tax is another important issue that might fly somewhat under the radar. Significant gifts made during life may well be relevant for Inheritance Tax purposes after death, while issues around Capital Gains Tax may arise more imminently depending on the assets involved. It is therefore important to understand the available exemptions and allowances which might serve to mitigate the potential tax consequences.
The Private Wealth & Tax team at Shepherd and Wedderburn has vast experience in advising clients around the options for implementing succession objectives such as these. Ensuring that manageable gifts are made in the most tax-efficient manner possible allows loved ones to enjoy maximum benefit from the support that parents and grandparents can offer. We are always happy to discuss appropriate structures for passing wealth down to the younger generations – although we can’t guarantee that they won’t spend some of it on avocado toast.