An estimated £5.5 trillion is expected to pass between generations in the UK over the coming decades, making it the largest intergenerational wealth transfer in the country’s history. Yet most families are remarkably unprepared. Many older adults haven’t structured their estates to minimise inheritance tax, haven’t updated wills, or simply haven’t had the conversation with their children about what’s coming.
On the receiving side, inheritors often have no relationship with the family’s adviser, no experience managing a significant portfolio, and very different ideas about how money should be invested. Read on to find out what’s changing, how to prepare your estate, and why the conversations you have now matter just as much as the numbers.
How Established Wealth Managers View the Transition
Passing money down requires careful timing and strong communication. Many families struggle because the younger generation has no relationship with the professionals who look after the family funds, and portfolios often suffer during the handover as a result.
Wealth rarely survives three generations without active family governance. The cause is almost never poor investment performance. It’s a breakdown in communication, unprepared heirs and a lack of shared decision-making before the money moves.
Involving children early in financial discussions builds confidence to manage a portfolio before they receive it, and establishes a relationship with advisers who already know the family history.
New Tax Rules and the Seven-Year Gift Window
The current inheritance tax system poses a real challenge for unprepared estates. The standard nil-rate band remains frozen at £325,000, and following the Autumn Budget 2025 this freeze has been extended until April 2031.
The residence nil-rate band adds a further £175,000 where a main home passes to direct descendants, taking a couple’s combined allowance up to £1 million in many cases. Anything above the available threshold is taxed at 40%.
A major change arrives in April 2027 when the government brings unused pension pots into the taxable estate for IHT purposes. This removes one of the most popular methods of passing on wealth tax-efficiently, and families need to review their estate structures now to avoid unexpected tax hits.
Gifting assets early remains an effective strategy, but it requires careful adherence to the rules. The seven-year rule means gifts only become fully exempt if the giver survives for seven years after making the transfer. If the giver dies between three and seven years after gifting, taper relief reduces the tax due on the gift rather than the gift’s value itself. Smaller annual allowances also help, including the £3,000 yearly gifting allowance and unlimited small gifts of up to £250 per person.
Sustainable Investments and the Next Generation
Younger inheritors often hold very different views on money rather than following the patterns of their parents. They tend to care deeply about environmental and social factors when choosing where to place capital, and they want their money to do good in the world while earning a stable return.
Specialist multi-asset portfolios like Rathbones’ Greenbank, focus entirely on sustainable, ethical and impact-led portfolios to meet this demand. As inheritors take greater control, traditional portfolios are likely to shift towards companies addressing climate change, biodiversity loss and social inequality.
The psychological side of receiving an inheritance also matters. Many young adults feel guilt or anxiety when they inherit wealth they didn’t earn, which often leads to impulsive spending or keeping too much in cash, where it quietly loses value to inflation.
Family Governance Tools for an Early Start
Families can use several formal structures to prepare the next generation. Family investment companies allow parents to pass on wealth gradually while retaining control of the underlying assets, and bringing children in as shareholders gives them practical exposure to investment decisions over time.
Donor-advised funds offer another route, letting families manage charitable giving together and build shared values across generations. Structured conversations early on help prevent disputes when the transfer eventually happens.
Why the Conversation Matters More Than the Numbers
Success in the great wealth transfer requires proactive planning from both sides. Givers need to review wills and tax structures to protect their assets from upcoming policy changes. Receivers need education and guidance to handle their new responsibilities.
Open discussion is the most valuable tool families have, and although talking about money can be uncomfortable, avoiding it almost always leads to worse outcomes. By starting the conversation now, families can make sure their wealth supports future generations for decades to come.
The value of your investments and the income from them may go down as well as up, and you could get back less than you invested. Past performance should not be seen as an indication of future performance.
Monica Costa founded London Mums in September 2006 after her son Diego’s birth together with a group of mothers who felt the need of meeting up regularly to share the challenges and joys of motherhood in metropolitan and multicultural London. London Mums is the FREE and independent peer support group for mums and mumpreneurs based in London https://www.londonmumsmagazine.com and you can connect on Twitter @londonmums
