More than two thirds (67%) of people are unaware of how bonds can be used for inheritance planning and tax mitigation, despite a growing appetite for intergenerational wealth transfer, LV= has found.

Its research revealed that 47% of people planned to pass down their wealth to future generations, with 38% intending to transfer assets directly to their children.

This increased demand comes amid changes to inheritance tax (IHT) policy announced in the 2024 Autumn Budget, including unused pension pots being included in IHT calculations from April 2027, and new caps on business and agricultural relief.

LV= stated that while these changes have prompted many people to reevaluate their estate, many remained unaware of how to transfer wealth in a tax-efficient way.

More than a third (36%) of people were worried about their financial future, with more people seeking professional financial advice to understand the impact of IHT and to ensure their wealth is passed down effectively.

The firm highlighted the use of onshore bonds as one solution that was rising in popularity, as they were seen as a simple and effective way to grow savings in a tax-efficient wrapper.

It added that onshore bonds can help mitigate IHT and support a smoother, more structured intergenerational wealth transfer when integrated into a broader estate planning strategy.

Onshore bonds can be assigned to family members without triggering a chargeable gain, with the new owner being treated as if they have owned the bond from inception, enabling them to benefit from full top-slicing relief and any unused 5% tax-deferred allowances on future encashments.

When used as a trust investment, the trustees benefit from a non-income producing asset and the ability to utilise the 5% tax-deferred withdrawal allowance when funds are needed.

LV= noted that this structure reduced administration and tax exposure for the trust, with the ability to assign all or part of the bond, assuming it is set up as several clustered policies, to a beneficiary at a later date usually resulting in tax savings.

Despite these potential benefits, 67% of people reported knowing almost nothing about how bonds can be used for inheritance planning and tax mitigation, with LV= stating that this knowledge gap highlighted the key role financial advisers play in educating clients on available strategies.

“With more people looking to pass on their wealth, it’s essential that they are aware of the financial planning tools at their disposal,” said LV= wealth proposition director, Sarah Hills.

“Onshore bonds offer a valuable option, combining tax efficiency with investment growth potential and flexibility, which can support clients as they prepare for later life and to leave a lasting financial legacy.

“Bonds remain a valuable option and it is clear that greater awareness and education are required to ensure clients fully understand their options and can make informed decisions.”

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