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Are you pinning your hopes on an inheritance?

Are you pinning your hopes on an inheritance?

Category: Money

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Are you hoping to receive an inheritance at some point in the future? If so, how much are you expecting? According to research from VouchedFor, you could be drastically overestimating the amount you'll get…

The inheritance gap

The figures show that there's a clear gap between the amount of inheritance expected and the sum that's actually on the cards, particularly among certain age groups, and this discrepancy could have a significant impact on financial planning. For example, one in 10 respondents aged 41-45 are hopeful that their inheritance will be sufficient to fund their retirement plans, and are anticipating an average of £180,217 – when in reality they're set to receive £69,871.

This 158% overestimation means that many people may not be putting as much thought into their pension savings as they perhaps should, with them instead thinking that they'll have a hefty inheritance to cover them throughout retirement. It could have "alarming repercussions", said Adam Price, managing director of VouchedFor, particularly for middle aged consumers. He explains:

"Growing property prices, increasing life expectancy, the rising cost of care and tax are all impacting the average inheritance that Britons receive, though clearly expectation hasn't always kept up with reality. This is particularly true for those aged 41-45; their inheritance expectation is increased as they start to worry about funding their retirement, yet clearly they risk a dramatic shortfall if they don't put more informed plans in place."

What could affect your inheritance?

Much of the overestimation could be due to a general lack of awareness over later life costs, with many people finding that their parents have to spend a significant amount on things like care fees. In fact, 42% of respondents regard long-term care fees as potentially having the biggest impact on their parents' estate, and 20% even expect that their parents will have to sell their home to fund their healthcare.

Inheritance tax (IHT) is another key concern, cited by 40% of respondents, yet only 2% have taken action to lower their potential IHT bill – and 78% haven't even written a will. Inheritance tax is becoming an increasingly pressing concern, particularly with rising property prices causing a higher proportion of homeowners to be subject to IHT, and it's concerning that so few are taking measures to prevent such a tax raid on their, or their parents', estate.

Despite these concerns, 61% anticipate that they'll receive an inheritance, but it's clear that many need to be more realistic in their expectations. These expectations appear to become closer to reality with age – the average respondent aged 51-55 expects an inheritance of £83,550, not far off the average amount of £89,467 actually received – but with so many factors having a potential impact on the level of inheritance, it's wise to start planning far sooner, even if it involves a few uncomfortable discussions.

Bite the bullet

The figures went on to reveal that only 39% of those in their early 40s have had a conversation with their family about inheritance, and only 46% of the population as a whole have done the same. "It seems that discussing inheritance is the last Great British taboo," said Adam. "While it may be uncomfortable, middle-aged consumers need to [start] talking inheritance through with older family members earlier; it is a key first step to ensure they have realistic expectations and that they maximise their inheritance pot.

"However, such discussions do not represent the whole solution: good financial advice has an important role to play, and it is concerning that only 2% of Britons have taken steps to lower their IHT bill. As most inheritance tax perks increase from the time they are set up, the earlier advice is sought, the more effective it is likely to be."

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.