Intergenerational wealth management Financial planning for the 'sandwich generation'...

These commitments aren’t trivial. Average annual gifts amount to £5,560 to adult children, £7,081 to parents, and £4,056 to grandchildren. And, as revealed in the Saltus Wealth Index, many are funding this generosity by selling investments or dipping into pension pots – decisions that can have long term financial consequences unless carefully managed.[4]

Financial pressures and risks

When you’re balancing the demands of supporting adult children and caring for ageing parents, wealth alone isn’t always enough. It’s not just about how much you have but when you need it and how easily you can access it. Without a plan, competing demands can quickly disrupt a well-structured portfolio.

Some key pressures and risks to consider in intergenerational wealth planning:

• Dual dependency drain: Helping two generations simultaneously, without a plan, can drain cash flow fast. Withdrawals at the wrong time can erode compounding and reduce future pension contributions. It’s often not the generosity causing the damage, rather it’s the timing – spending today what was meant to grow for tomorrow.
• Rising cost of care: People are living longer, often with increasing medical and care needs. Without proper planning, costs can quickly escalate.
• Tax pressure: Liquidating or gifting assets to support family can trigger significant inheritance tax (IHT) or capital gains tax (CGT) liabilities. Working with a financial adviser can help you navigate these complexities and help you make more tax-efficient decisions.
• Inflation: Everyday costs such as education, healthcare and housing often rise faster than the official inflation rate. Over time, this can erode the real value of your savings or retirement income, so it’s worth reviewing your long-term plan regularly to keep it on track – financial advice can prove invaluable here, particularly where you may have multiple dependents.

Tax efficient wealth planning

Balancing support for parents and adult children while also preparing for your own retirement can feel like walking a financial tightrope. There are several tax-efficient vehicles to consider, though each requires bespoke advice.

Gifting

Each tax year, you can take advantage of a £3,000 annual gift exemption, allowing for the transfer of assets without inheritance tax implications.[5] Larger gifts are classed as potentially exempt transfers (PETs) and fall outside your estate if you survive seven years after the gift.[6] There is also a small-gifts allowance of up to £250 per recipient per tax year, provided it’s not combined with the £3,000 exemption for the same individual.

Trusts

Trusts can be versatile tools for both control and tax efficiency, though not every structure suits every family. Professional advice is essential.

Discretionary trusts can be a useful solution for intergenerational wealth planning. All future growth is held outside the settlor’s estate, making them particularly effective for IHT mitigation. Importantly, they also offer protection against divorce, creditors and other external risks.

Interest in possession (IIP) trusts can suit families supporting multiple generations. One beneficiary, often a spouse or elderly parent known as the life tenant, receives income for life, while capital is preserved for adult children.[7] The life tenant pays tax on income; the underlying assets generally remain within the settlor’s estate for IHT purposes.

Family Investment Companies (FICs)

For families with over £2 million in investable assets, a FIC can be an effective structure for managing, growing, and transferring wealth. FICs can hold diverse assets, including property and investments, and issue different share classes to separate voting control (Type A shares) from financial benefits (Type B shares). This structure enables founders of the FIC, who may be a sole individual, a married couple or civil partners, or two or more senior family members, to retain decision-making power while distributing profits to other shareholders.

However, FICs are complex and must be set up with legal and tax advice. Ongoing administration, valuation, and reporting requirements can be significant. You can read more about Family Investment Companies here: Family Investment Companies (FICs) : A complete guide | Saltus.

Venture Capital Trusts

VCTs offer tax-efficient investment in smaller UK companies, providing 30% upfront income tax relief if held for at least five years. Dividends are tax-free, and there is no CGT on disposal.[8] However, the relief is capped at £200,000 per tax year and only applies if you have sufficient income tax liability. That said, they are very high risk, and you should speak to a financial adviser to understand whether they’re right for you. VCTs are generally suited to high earners who have already maximised other tax efficient investments like pensions and ISAs.

The Financial Conduct Authority does not regulate tax advice. In addition, the Financial Conduct Authority does not regulate tax planning or trusts.

The benefits of cash flow planning

Traditional budgeting can often fall short when tasked with the complexity of intergenerational wealth planning. That’s where cash flow planning can make a difference.

Unlike a static budget, cash flow planning can help you see how today’s decisions affect tomorrow’s wealth. With the help of a financial adviser, a cash flow plan can map out a retirement plan that adapts to changes over time such as fluctuating income, one-off expenses or different market conditions. A well structured cash flow plan will take into consideration things like:

• Adult children’s expenses – school fees, extracurricular activities, university costs
• Parental support – healthcare costs, assisted living, home modifications
• Everyday costs – household bills, mortgage, pension contributions, holidays
• Major milestones –downsizing, gifting, retirement timing

It can also help you map out different scenarios. For example:

• What if you retired at 60 vs 65?
• What happens if a parent needs additional care sooner than expected?
• Can you afford to help your child with a house deposit without affecting your own retirement?

At its core, a cash flow plan allows you to make informed decisions based on real data. A simple version might look something like this:

The Financial Conduct Authority does not regulate cash flow planning.

Maintaining financial resilience

Supporting family while building your own retirement plan demands balance and foresight. According to the Saltus Wealth Index, high net worth individuals’ retirement expectations often exceed their current savings trajectory.

Pension contributions are often falling short of the full annual allowance (£60,000), with a third (30%) of respondents contributing £20,000 or less, 32% contributing between £20,000 and £40,000, and only 10% contributing the full amount.[9]

Of course, this is not to say you should not support your adult children and parents, or that doing so will inevitably mean falling short of your own retirement goals. Rather, it highlights the importance of financial advice, particularly when circumstances are complex. Creating a tailored cash flow plan and building a relationship with a trusted financial adviser can help you support your adult children, assist your parents, and still achieve your own retirement objectives, or at the very least, gain a clearer understanding of what your retirement could look like.