New research has been released from Barclays Wealth which assesses the impact of rising living costs on inheritance and retirement planning.

As the oldest Millennials turn 40-years-old, their parents are considering gifting them inheritance early to increase support for their living costs this year, new research from Barclays Wealth reveals. 

With the Bank of England warning that inflation could tip 13 per cent by the end of 2022, over a third of parents of 40-year-old Millennials now anticipate gifting inheritance this year to help their children with immediate living costs, as opposed to larger purchases such as property, the research shows.

Almost two in five parents expect to be more flexible in their support for the rest of this year, giving money early when needed rather than planning ahead.

The research also shows that more than 76 per cent of 40-year-olds have already received some form of inheritance from their parents, with the majority putting this to use in savings and investments (30 per cent), setting up their own business (20 per cent), or buying their first property (18 per cent).

However, if they were to receive that same inheritance this year, 94 per cent of them said they would use more of it on living costs – including bills, daily travel, food, clothing, and healthcare. Of these respondents, nine in 10 earn £55,000 ($64,000) and over, the research reveals.

For those 40-year-olds who are due to receive an inheritance in the future, using the funds for living expenses (18 per cent) comes second only to putting this into savings and investments (31 per cent), showing the impact of the cost of living on financial priorities.

The UK-wide research of 2,000 parents of 40-year-old Millennials showed that despite the cost of living and rising inflation, the majority (85 per cent) are confident that they will have enough to support their whole retirement.

However, over half of parents are worried that inheritance tax will have a significant impact on their final estate due to providing increasing financial support for their children. In view of the rise in the cost of living, more than half expect to dip into their retirement pots to support their children throughout the rest of their lifetime, whilst half expect to live longer and therefore spend more during their retirement.

For these reasons, they anticipate that the current rate of inheritance tax over the £325,000 threshold will leave even less behind for other beneficiaries including their spouse or partner, grandchildren, friends, and other family members.

To help manage their finances, four in five have increased the frequency of reviewing their investment portfolio in the last two years, with one in four doing so once a month, and one in five doing so every two to three weeks, the research adds.

Clare Francis, director of savings and investments at Barclays Wealth, said: “The rising cost of living is cutting into even the most resilient saving pots and salaries, forcing many to re-consider their financial priorities, whatever their generation or income.”

“Passing down smaller, more frequent sums of money in a lifetime can be both tax efficient and give beneficiaries more flexibility, but the long-term must be considered as well: both in terms of comfortably funding a whole retirement, as well as future family milestones,” she added.

“It has always been important that families talk about financial planning with each other and their financial advisor, yet the impact of rising inflation makes having these conversations early even more crucial,” she said.

Lee Platt, chartered wealth planner and director with Barclays Wealth and Investment Management added: “Estate planning around IHT can be hugely complex, with many rules and regulations to navigate. For parents who need to support their children more in their lifetime, particularly with living costs, this will naturally cut into the value of the estate left behind – and mean less for other beneficiaries. While it can be daunting, and tax rules can change, speaking to an advisor early can help develop your family a bespoke, flexible plan that stands the test of time.”

The research covered 2,000 parents of consumers who all had assets of at least £1 million, including property. The 2,000 40-year-old Millennials are already investors, or have considered investing their money.