Life events and family wealth
Should You Give Your Children Money Now or Leave It as an Inheritance?
A gift can turn a 5% deposit into a 15% one, cover a year of nursery fees, pay for retraining or let someone drop a day of work while their children are small. Those are changes you can see happen. An inheritance later can still matter a great deal, but many parents also want to know what they could do sooner. This guide starts with their question: what could we give while still funding the retirement we want?
The short answer: Give from genuine surplus, not from money your retirement still needs. Work through it in order: cost your retirement, choose a proposed gift, compare your plan with and without it, test it under tougher circumstances, then decide the timing and keep a record.
1
What changes for your child?
2
What changes for your retirement?
3
How will you arrange and record the gift?
In this guide
- Why the timing matters as much as the amount
- Meet the Patels
- What does your own retirement need first?
- Before and after: testing the gift
- Set the date and the amount
- Die With Zero: a different lens
- Martin and Carol: regular help from income
- Two more complex cases
- Ways to give, from small to large
- Tax considerations
- Potential complications
- What to record before transferring money
- Understanding your results
- Frequently asked questions
Important: The families and figures in this guide are fictional illustrations, not forecasts or advice. A large gift cannot normally be taken back, so get regulated or professional advice where the gift, estate, pension or family arrangement is material or complex.
Why the timing matters as much as the amount
Picture £30,000 arriving at three different points in your daughter’s life. At 31 it might turn a 5% deposit into a 15% deposit and cut her mortgage payments. At 45 it might pay for retraining or let her work four days a week while her children are small. At 61 it might help her retire a little earlier or pay off what’s left of the mortgage. The same money removes different obstacles at different stages.
A gift does the most when it removes a specific obstacle, and the useful date depends on the person: their plans, their income, their housing and what they are trying to do. Some people need help at 28. Others need it at 50.
Inheritances often arrive late. In 2017 the Resolution Foundation projected that the most common age at which people then aged 20 to 35 would inherit was 61. That is a projection of the most likely age for one group, made in 2017, not a forecast for every family. ONS survey data for 2014 to 2016 showed that people aged 55 to 64 were the most likely to have received an inheritance, which is an observed pattern rather than a projection. And in 2020 the IFS projected that people in England born in the 1980s will, on average, be 64 when their last surviving parent dies. A most common age, an observed peak and an average measure different things, but they point the same way: for many families, an inheritance arrives after the big early costs have been met some other way.
Work out when help would be useful
- Write each child’s age today and the age they will be in five and ten years.
- Ask them what would actually help, and when, before you decide for them.
- Mark the events you know about: a planned move, a baby, retraining, a business or a change in working hours.
- Circle the events where help would remove a real obstacle, not just make life nicer.
- Note the year each one is likely to land. That gives you a date to test, not a deadline.
What £25,000 does for Anika’s deposit
Anika Patel is 31 and a children’s nurse in Nottingham. She and her partner Josh, an electrician, have saved £12,500 towards a £250,000 two-bedroom terrace in Beeston. That is a 5% deposit. A £25,000 gift from her parents would take it to £37,500, or 15%.
To show the effect, we use illustrative rates on a 30-year repayment mortgage: 4.75% at 95% of the price and 4.45% at 85%. These are not current mortgage quotes.
| Before the gift | After a £25,000 gift | |
|---|---|---|
| Deposit | £12,500 (5%) | £37,500 (15%) |
| Purchase price | £250,000 | £250,000 |
| Borrowing | £237,500 | £212,500 |
| Illustrative rate | 4.75% | 4.45% |
| Monthly payment over 30 years | £1,239 | £1,070 |
Most of the saving comes from borrowing less. Borrowing £212,500 at the same 4.75% would cost about £1,109 a month, £130 less than before. The assumed lower rate at 85% takes off about another £38, to £1,070. If the rates on offer when she buys are closer together, the second part shrinks. The first part does not.
£130a month less from borrowing less
£38a month less from the assumed lower rate
£168a month less in total
£2,022a year less in total
Meet the Patels: whose retirement are we testing?
The Patels are a fictional household. Every figure below is an illustration built for this guide, so you can follow the method with your own numbers.
Sunita and Raj Patel live in Oadby, near Leicester. Their daughter Anika has found a home and they would like to help with the deposit now. Their son Dev is 28 and renting in Leicester. He has no fixed plans yet, and they want him treated fairly too.
| Sunita | Raj | Joint | |
|---|---|---|---|
| Age | 62, former retail store supervisor | 60, retired lorry driver | |
| Defined contribution pension | £200,000, untouched | £130,000, from an earlier employer | |
| ISA | £40,000 | £30,000 | |
| Cash | £40,000 | ||
| Workplace pension | £12,000 a year before tax, already paid | ||
| State Pension | £12,547.60 a year from 67, in 2031 | £12,547.60 a year from 67, in 2033 | |
| Home | £340,000, no mortgage, not used for spending |
Their pensions, ISAs and cash add up to £440,000. They plan to spend £40,000 a year after tax: £30,000 on essentials and £10,000 on the extras that make retirement theirs. The plan runs to Sunita’s 95th birthday, with a check to 100. Their home is left out of the spending plan. They intend to keep living there and treat it as a last-resort reserve for care, not money to spend.
| Years | Reliable income before tax | Reliable income after tax |
|---|---|---|
| Now to 2031 | £12,000 (Raj’s workplace pension) | £12,000 |
| 2031 to 2033 | £24,548 (plus Sunita’s State Pension) | £24,548 |
| From 2033 | £37,095 (plus Raj’s State Pension) | about £34,700 |
What does your own retirement need first?
Before testing any gift, the Patels need to know what their own plan asks of their savings. Think of it as four jars, filled in order. The first three are theirs. The fourth holds the gift they want to test.
1
Floor
Your essential spending after tax, minus your reliable income after tax, worked out for each stage as that income changes. This is a yearly gap. Multiplying it by the years left gives a rough feel for scale, but it is not a retirement model, because tax, growth and spending all move.
The Patels: Essentials cost £30,000 a year. Until Sunita’s State Pension starts in 2031, Raj’s £12,000 workplace pension leaves a gap of £18,000 a year. From 2031 to 2033 it is about £5,450. Once both State Pensions are paid in 2033, their reliable income is about £34,700 after tax and the floor is covered.
2
Buffer
Money for things that will go wrong, things you know are coming and things you cannot predict. Keep the three apart so you can see what each is for.
The Patels: £15,000 of cash as an emergency fund. £20,000 for known one-off costs over the next five years: a new roof and a replacement car. £50,000 for resilience, such as a longer life, poorer returns or higher costs later. They chose £50,000 because it would keep their lifestyle spending going for about five years through a bad patch. Buffer: £85,000.
3
Lifestyle
The extras that make retirement yours: travel, hobbies and time with family. Cost them for the years you expect them. Some people spend less on these as they get older and others do not, so use your own plans.
The Patels: £10,000 a year on top of essentials, for as long as they can enjoy it. They have not assumed it falls later.
4
Potential gift to test
The gift you are considering, written down as an amount, a source account and a date. It is a proposal to test against the first three jars, not an amount the jars prove is safe.
The Patels: £25,000 to Anika this tax year, from Sunita’s ISA.
Budget step: use the Retirement Spending Calculator to cost your spending. Enter your household costs by category: housing, utilities, food, transport, healthcare, insurance, leisure, clothing, phone and broadband, and the other extras. The result that matters is the yearly total. Split it into essentials and lifestyle before you fill the first and third jars.
Income timing: the Bridge to Retirement Calculator takes your savings, the age you can first take a private pension, your yearly spending, other income such as a defined benefit pension, and your State Pension age. Look at the years before each pension starts. Those are the years your floor gap has to be paid from savings.
Gross to net: the Pension Drawdown Tax Calculator takes your pension pot, the spending you need after tax, your State Pension and any other taxable income. The result that matters is how much you need to withdraw before tax to get the spending you need, because that is what leaves your pension.
Your worksheet: test a proposed gift
| Line | How to work it out | The Patels | You |
|---|---|---|---|
| Pensions, by owner | Defined contribution pots in each name | Sunita £200,000; Raj £130,000 | |
| ISAs, by owner | Each person’s ISAs | Sunita £40,000; Raj £30,000 | |
| Cash, by owner | Money you can reach quickly | £40,000 joint | |
| Home | Value, and whether your plan relies on it | £340,000, not used for spending | |
| Reliable income after tax | State Pension, defined benefit pensions and annuities, by owner and start date | £12,000 now; about £24,550 from 2031; about £34,700 from 2033 | |
| Spending after tax | Essentials plus lifestyle | £30,000 plus £10,000 | |
| Floor gap a year | Essentials minus reliable income after tax, for each stage | £18,000, then about £5,450, then nil | |
| Buffer | Emergencies, known one-offs and resilience | £85,000 | |
| Proposed gift | The amount you are considering | £25,000 | |
| Source account | Where the money comes from | Sunita’s ISA | |
| Gift date | When it would be paid | This tax year | |
| Result without the gift | Savings at 85, and how long spending is covered | £407,000; covered to 95 | |
| Result with the gift | The same measures | £352,000; covered to 95 | |
| Result under tougher assumptions | The same measures, with the checks below | £41,000 at 85; first shortfall at 90 | |
| Money kept for flexibility | Money not committed to anyone | £15,000 left in Sunita’s ISA, Raj’s £30,000 ISA and £40,000 cash: £85,000 | |
| Review date | When you will check again | April 2028 |
Your worksheet: test a proposed gift
Type your figures in the boxes. They are saved on this device only.
Before and after: does the gift still leave their retirement intact?
This is the evidence for the decision. We ran the Patels’ plan three ways with identical retirement assumptions: no gift yet; £25,000 to Anika now; and a smaller £12,500 now, with a review in April 2028 before a second £12,500. We chose £12,500 for the smaller version because it doubles Anika’s deposit to 10% while leaving room to change course.
| Measure | No gift yet | £25,000 now | £12,500 now, review in 2028 |
|---|---|---|---|
| Savings at Sunita’s 70 | £331,000 | £298,000 | £299,000 |
| ISAs and cash at 75 | £149,000 | £110,000 | £112,000 |
| Savings at 85 | £407,000 | £352,000 | £354,000 |
| Spending covered, central case | to 95 | to 95 | to 95 |
| Tougher test: savings at 85 | £76,000 | £41,000 | £42,000 (£59,000 if the second payment is held back) |
| Tougher test: first weak point | first shortfall at 94 | first shortfall at 90 | first shortfall at 90 (92 if the second payment is held back) |
| Surviving partner check: savings at 95 | £304,000 | £226,000 | £229,000 |
In the central case all three versions fund their spending to 95. The difference shows under pressure. With no gift, the tougher test first runs short at 94. With £25,000 given now, it runs short at 90. The staged version gives them a decision point: if the first two years go badly and they hold back the second £12,500, the first shortfall moves to 92.
If the gift came from a pension instead. Taking £25,000 from their pensions rather than Sunita’s ISA would mean withdrawing about £29,400 more that year, of which about £4,400 goes in Income Tax, because the extra lands on top of the withdrawals already paying for their spending.
How we tested it, and what the model leaves out
- All figures are in today’s money. Pensions and ISAs grow 3.5% a year after inflation and charges. Cash keeps pace with inflation.
- Spending is £40,000 a year after tax. Pension withdrawals are shared between Sunita’s and Raj’s pots by size. 25% of each withdrawal is tax-free and the rest is taxed at 20% above each person’s £12,570 Personal Allowance, held at today’s level. ISAs and cash are used after pensions.
- Gifts come from Sunita’s ISA, then Raj’s if needed. The home is not used.
- Tougher test: growth of 1.5% a year, spending 10% higher at £44,000, a £20,000 one-off cost next year, and a plan that runs to Sunita’s 100th birthday. These are the same kinds of change as Plan Hub’s stress checks.
- Surviving partner check: Raj dies at 78. Sunita keeps an assumed widow’s pension of half his workplace pension, £6,000 a year, loses his State Pension, takes over his pension pot and ISA, and spends £30,000 a year.
- It is not a forecast. Frozen tax thresholds could mean more tax than shown. Care costs, Scottish tax rates and future rule changes are not modelled.
Set the date and the amount
Only now, with the comparison and the tougher checks in front of them, do the Patels decide. Commitments should follow the calculation, particularly when someone is relying on the money.
- One lump sum when a specific event needs it, such as a deposit.
- Staged gifts with dates written down, each reviewed against your plan before it is paid.
- Regular gifts from income for a stage that lasts a few years, such as nursery fees.
Be clear which is which. A firm commitment is money your child can plan around: a mortgage offer, a nursery place, a course start date. A possible future payment depends on a review. Tell them when the review is, what you will look at and that the answer could be less, or no. They can reasonably plan around the first. They should not borrow against the second.
Before
- Anika: 5% deposit, payments about £1,239 a month
- Dev: nothing planned
- No gift in their plan
After
- £25,000 to Anika now from Sunita’s ISA, a firm commitment
- Dev told they would like to help in a similar way when he has a plan, with the amount set at a review
- Their next review in April 2028
What they gave up
Some margin. In the tougher test their first shortfall moves from 94 to 90. They accepted that because Anika’s purchase needs the money now, and they kept their £85,000 buffer intact. They told both children the plan at the same Sunday lunch, so there was full transparency about their decision.
Coaching question: Which part of your gift is a firm commitment your child can plan around, and which part depends on a review?
Die With Zero: a different lens
In Die With Zero (2020), Bill Perkins argues that money is worth what you turn it into, and that giving while you are alive lets you see it help. He also suggests planning experiences deliberately, including the ones you want to share with family, rather than leaving every decision until later. These are his ideas, not established financial rules, and the book is written for an American audience.
Your time-bucket exercise
- Draw a box for each stage of retirement you want to plan, in whatever spans suit you.
- In each, write the things you want to do and cost the expensive ones.
- Add what your children may be doing in those years, using what they have told you.
- Where a gift and an experience compete for the same years, decide which comes first.
To put numbers on this, try our Die With Zero Calculator.
Martin and Carol
Martin and Carol: regular help from income
Retired, Haxby, near York
70 and 68Martin, retired train driver; Carol, former school secretary
£42,000pensions a year before tax
£300,000investments and cash
£5,428estimated surplus a year
“Ben and Priya are paying more for nursery than they pay for the mortgage. We can’t fix that, but we can take the edge off for a couple of years.” Carol
Their son Ben is 34 and his partner Priya is going back to work after their daughter turns one. Martin and Carol would like to give £500 a month for three years.
Their normal household spending is about £32,000 a year. On paper, that leaves £10,000. But that surplus is before tax. Martin’s pensions pay £21,000 a year and so do Carol’s. Each has the £12,570 Personal Allowance, so each pays 20% on £8,430: £1,686 each, £3,372 together. Their net income is about £38,628. Take off £1,200 a year for irregular costs such as the car, the roof and dental work, and the estimated surplus is £5,428 a year.
That £1,200 is their own assumption, based on what they have spent on those things in recent years. It is not a recommended household budget. Yours may be much higher.
£5,428estimated surplus a year
£4,800proposed gifts a year, £400 a month
£628left uncommitted
Aprilannual review
| Question | Why it matters |
|---|---|
| Is the £400 genuinely paid from income? | The exemption is not available simply because a regular standing order is used |
| Is there a clear pattern? | Normal expenditure usually needs to be regular or demonstrably intended to be regular |
| Can they maintain their usual lifestyle? | The gifts must not force them to use capital to cover normal living costs |
| Are records being kept? | Their executors may need to show income, spending and gifts later |
| What is the review date? | A three-year promise should still be checked against changing income and costs |
Before
- Plan: £500 a month, £6,000 a year
- Estimated surplus: £5,428 a year
After
- £400 a month by standing order, £4,800 a year
- £628 a year left uncommitted
- A one-page record of net income, spending and each payment, reviewed every April
What they gave up
The neat £500 figure. Starting lower means the gifts come from income they can show is spare. A standing order on its own does not establish the exemption for normal expenditure out of income: the gifts must form part of their normal spending, be made from income and leave them enough to keep their usual standard of living, and their executors may need the records to show it. If their surplus holds up, they can raise it next year.
Coaching question: Is this gift coming from money you genuinely have spare every year, after tax and one-off costs, or are you slowly dipping into savings without realising?
Two more complex cases
Optional reading. These two examples involve larger estates and more tax detail. Each one tests a different question: Graham’s is about using exemptions in the right order, and David and Lisa’s is about checking affordability before tax savings.
Graham
Graham in Harrogate: leave it or give it?
Widowed, Harrogate
71retired quantity surveyor
£33,500pension income a year before tax
£1,150,000estate including his pension
44, 7 and 3son Tom, and grandchildren Ella and Sam
His son Tom is 44 and has two children, Ella, 7, and Sam, 3. Graham’s wife Margaret died in 2021 and left everything to him. Because her estate passed to her husband, her nil-rate band and her residence nil-rate band were unused. Graham’s executors can claim both when he dies, giving his estate up to £1 million before Inheritance Tax, on three conditions: they make the claim within two years of his death, his home passes to his children or grandchildren, and his estate stays below £2 million, above which the residence band starts to shrink.
His position now. If Graham died before 6 April 2027, his £380,000 pension pot would normally sit outside his estate. His £600,000 home and £170,000 of investments come to £770,000, below the £1 million, so no Inheritance Tax would be due on these assumptions.
For deaths from 6 April 2027. Unused pension funds will usually count too. Add his pension pot and the estate is £1,150,000, £150,000 over the £1 million, so the illustrative bill is about £60,000 at 40%, assuming his figures stay the same.
His income is a £21,000 final salary pension plus the full new State Pension of about £12,550. After Income Tax of about £4,200 he has around £29,350, and he spends about £26,000. That leaves roughly £3,350 a year of surplus income.
What he wanted: to help the family while he can see it, without selling the house he loves or drawing down his pension and paying Income Tax on it.
One ledger for his exemptions
| Gift | Amount | Exemption used | Not exempt |
|---|---|---|---|
| Junior ISAs for Ella and Sam, 2026/27 | £6,000 (£3,000 each) | £3,000 annual exemption for 2026/27, plus £3,000 as normal expenditure out of income from his £3,350 surplus | £0 |
| Tom, 2026/27 | £20,000 | £3,000 unused annual exemption carried forward from 2025/26, when he made no gifts | £17,000 |
| Junior ISAs in later years | £6,000 a year | That year’s £3,000 annual exemption plus £3,000 from income | £0 |
The same £3,000 cannot cover both the Junior ISAs and Tom. Because the Junior ISAs use this year’s annual exemption, only last year’s unused £3,000 is left for Tom’s gift. This assumes the Junior ISA payments go in before Tom’s £20,000 each tax year, so they use that year’s annual exemption first.
What Tom’s £20,000 saves. If Graham lives seven years after the gift, the whole £20,000 is outside his estate and the bill falls by £8,000. If he dies within seven years, the £3,000 covered by the carried-forward exemption still saves £1,200. The other £17,000 is added back. It sits within his nil-rate band, so there is no tax on the gift itself and taper relief has nothing to reduce, but it uses up £17,000 of the band, so his estate pays the same tax it would have paid on that money anyway. The saving is then £1,200, not £8,000.
The Junior ISA projections assume £3,000 is paid in for each child at the start of each year, from Ella’s current age of 7 and Sam’s of 3 until each turns 18, which is 11 payments for Ella and 15 for Sam. Each pot grows 3.5% a year after inflation and charges, in today’s money. That gives Ella about £40,800 from £33,000 paid in, and Sam about £59,900 from £45,000.
£3,000into each Junior ISA a year
£40,800Ella’s pot at 18 (paid in £33,000)
£59,900Sam’s pot at 18 (paid in £45,000)
£8,000less tax if he lives 7 years after Tom’s gift, £1,200 if not
Before
- Estate £1,150,000 for deaths from April 2027, tax about £60,000
- Grandchildren: nothing set aside
- Tom: inheritance at some point
After
- £3,000 a year to each grandchild’s Junior ISA, covered by his annual exemption and surplus income
- £20,000 to Tom now to overpay his mortgage
- If he lives seven more years, the bill falls by £8,000
What they gave up
Some flexibility. Junior ISA money belongs to the child and is locked until 18, then it is theirs to spend. He also accepted that if he dies within seven years, Tom’s gift saves £1,200 rather than £8,000.
Coaching question: Which of your gifts use the same exemption, and have you counted it only once?
David and Lisa
David and Lisa in Surrey: the £850,000 house
Guildford, Surrey
64 and 62David, retired IT project manager; Lisa, physiotherapist with her own private practice, now part-time
£1.87mestate including pensions
£48,000planned spending a year after tax
30 and 27ages of Hannah and Oliver
David and Lisa are considering £50,000 for each of their children: Hannah, 30, who rents in Guildford, and Oliver, 27, who rents in Bristol. Both are saving for a first home. Before looking at tax, they tested whether their own plan could carry it.
They have £650,000 in pensions (David £400,000, Lisa £250,000), £250,000 in ISAs and other investments (David £150,000, Lisa £100,000), £120,000 in joint cash and a mortgage-free home worth £850,000. They plan to spend £48,000 a year after tax. David’s £9,000 final salary pension is already paid. Their State Pensions start at 67, in 2029 for David and 2031 for Lisa. Once all are paid, their reliable income is about £34,000 before tax and about £32,300 after it, so their savings still carry around £15,700 a year. We leave Lisa’s part-time earnings out so the test does not depend on them.
| Measure | No gift | £50,000 now | £100,000: £50,000 now, £50,000 in two years |
|---|---|---|---|
| Savings at Lisa’s 85, central case | £1,227,000 | £1,117,000 | £1,014,000 |
| Tougher test: savings at Lisa’s 85 | £533,000 | £463,000 | £394,000 |
| Tougher test: savings at Lisa’s 95 | £370,000 | £288,000 | £209,000 |
| Spending covered | to 100 in both tests | to 100 in both tests | to 100 in both tests |
The tougher test uses the same changes as the Patels’: growth of 1.5% a year, spending 10% higher, a £20,000 one-off cost next year and a plan to Lisa’s 100th birthday. On these assumptions the gift does not threaten their spending, even under pressure.
As a rough sense-check, at a 3.5% withdrawal rate £100,000 is about £3,500 a year of spending they give up for good.
Who gives what, when and from where
| Gift | Donor and account | When | Exemptions | Not exempt |
|---|---|---|---|---|
| £25,000 to Hannah | David, from his ISA | Now, 2026/27 | £3,000 for this year plus £3,000 carried forward | £19,000 |
| £25,000 to Oliver | Lisa, from her ISA | Now, 2026/27 | £3,000 for this year plus £3,000 carried forward | £19,000 |
| £25,000 to Hannah | David, from his ISA | 2028/29, after their review | £3,000 for 2028/29 plus £3,000 unused from 2027/28 | £19,000 |
| £25,000 to Oliver | Lisa, from her ISA | 2028/29, after their review | £3,000 for 2028/29 plus £3,000 unused from 2027/28 | £19,000 |
This assumes neither of them has made other gifts in the last seven years. Each seven-year clock belongs to the person who made the gift. If David dies within seven years of his gift to Hannah, that gift is counted against David’s own nil-rate band, which leaves less of his band to pass to Lisa.
What the gift does to their estate
Each person has a £325,000 nil-rate band and a £175,000 residence nil-rate band when a home passes to children. The £1 million combined allowance assumes the first to die leaves everything to the other, so both sets of bands pass to the survivor, the home goes to their children, and the estate stays under £2 million. The second-death estate assumes the survivor still has everything they have today, with pensions counting from April 2027: £1,870,000. Spending and growth would change that figure, so treat it as an illustration of scale. With no gift the bill is £348,000.
£348,000bill with no gift
£328,000after £50,000, both donors live 7 years
£308,000after £100,000, both donors live 7 years
£343,200if both die within 7 years of the first £50,000
If both die within seven years of the first gifts, only the exempt part stays out of the estate. That is £12,000: £6,000 each from this year’s and last year’s annual exemptions. The other £38,000 is added back and uses up nil-rate band first. It sits inside their bands, so taper relief has nothing to reduce and the timing within those seven years makes no difference. The bill is then about £343,200, a saving of £4,800. One more line to watch: above £2 million, the residence band shrinks by £1 for every £2 over. In our central projection their savings grow, and by Lisa’s 85 the estate would be about £2.08 million, losing about £38,000 of residence band and adding about £15,000 of tax. Giving £100,000 would keep them under the line.
Before
- Estate £1,870,000, bill £348,000
- Children renting in Guildford and Bristol
- £100,000 on the table
After
- £25,000 each now, David to Hannah and Lisa to Oliver, dated and recorded
- A second £25,000 each in two years, if their first two years of retirement spending match the plan
- If each lives seven years after their own gifts, the bill falls to about £308,000
What they gave up
Certainty for the children. They know the second half depends on the review, so they have planned their deposits around the first £25,000. David and Lisa also accepted a smaller travel budget in the first two years while they test their spending.
Coaching question: Would a smaller amount still change your children’s housing position, and what would you gain by keeping the rest for two more years?
Ways to give, from small to large
Giving the full amount immediately is only one option. These five approaches let you help without making one irreversible decision.
1
Give the amount that changes the outcome
Ask for the minimum useful figure.
For Anika, £12,500 gets her to a 10% deposit and £25,000 gets her to 15%. Compare what the extra £12,500 does for her monthly payment with what it removes from your reserve.
The right answer may still be £25,000. The point is to make the extra amount a separate decision.
2
Stage the gift
You might give part now and review the remainder after a pension starts, a house sale completes or you have lived through a full year of retirement spending.
For example:
- £15,000 for the deposit now
- £5,000 after completion for essential work
- a further amount in two years if your retirement plan remains comfortable
Staging preserves options. It also lets you learn whether your own spending estimate was realistic. David and Lisa used this shape: £25,000 each now, and a second £25,000 after a review in two years.
3
Provide regular support from income
Regular help may suit childcare, rent during training or another temporary stage.
Set an amount and an end date. Review it each year against your income and spending. If you hope to use the exemption for regular gifts from income, check that all three conditions are actually met.
4
Make a documented family loan
A loan can preserve some future control, but it creates legal, mortgage and relationship questions. A lender may treat family borrowing differently from a non-repayable gifted deposit. The family also needs to decide what happens after death, divorce, missed payments or a sale.
Do not describe money as a gift to a lender while privately expecting it to be repaid. If a loan is the genuine arrangement, document it properly and tell the relevant professionals.
5
Help in a different way
Money does not always need to arrive as one large transfer.
You could:
- pay a specific professional or training cost
- cover a defined period of childcare
- match the child’s own deposit savings
- allow an adult child to live at home while saving
- help with essential work after a purchase rather than increasing the deposit
- review downsizing if the current home is larger than you want and released equity could support both households
If the intended gift depends on releasing money from your home, the Downsizing vs Passing Home to Children Calculator lets you compare gifting some equity now with leaving the property later.
Other routes to compare
Help them save into a Lifetime ISA
First-time buyers aged 18 to 39 can open a Lifetime ISA and pay in up to £4,000 a year. The government adds 25%, up to £1,000 a year, if the money goes towards a first home worth £450,000 or less. Your gift becomes their contribution.
The catch is a 25% charge if they take the money out for anything else, and the property limit is tight in many areas. The government has said it plans to replace the Lifetime ISA, so check the current rules first.
Support the mortgage rather than the deposit
Some lenders offer family-backed mortgages. With a joint borrower sole proprietor mortgage, your income helps them borrow more, but you are on the mortgage and liable for it without owning the home.
Savings-backed deals hold your money in an account as security for a few years, then return it if payments are kept up. You keep the money, but it is tied up and at risk if they fall behind.
Give for the longer term
For grandchildren under 18, a Junior ISA takes up to £9,000 a year. You can also pay up to £2,880 a year into a pension for a child or non-earner, and tax relief tops it up to £3,600. Both lock the money away: a Junior ISA until 18, a pension until the child reaches pension age.
If you want control over how the money is used, a trust can do that. But trusts have their own tax rules: putting more than the nil-rate band into most trusts can mean a 20% Inheritance Tax charge straight away. They need a solicitor to set up properly.
Tax considerations: keep the gift decision separate from the tax decision
Inheritance Tax matters, but it should not be the first reason to give. A gift can be tax-efficient and still be unaffordable. It can also be affordable even if it saves no tax at all.
The annual gift exemption
You can normally give away a total of £3,000 each tax year under the annual Inheritance Tax exemption. If you did not use the exemption in the previous tax year, you can carry it forward for one tax year.
This is an exemption for Inheritance Tax. It is not a limit on how much you are allowed to give.
If two parents each have their current £3,000 exemption and a full unused exemption from the previous year, they may together have up to £12,000 covered by those annual exemptions. Whether that applies depends on the gifts each person has already made and who owns the money.
There are two other everyday exemptions. You can give up to £250 a tax year to as many people as you like, as long as you have not used another exemption for the same person. And on or shortly before a wedding or civil partnership, you can give £5,000 to your child, £2,500 to a grandchild or great-grandchild, or £1,000 to anyone else. Wedding gifts can be added to the £3,000 annual exemption for the same person. The £250 small gifts exemption cannot.
| Exemption | Amount | Notes |
|---|---|---|
| Annual exemption | £3,000 a tax year | One year’s unused amount can be carried forward |
| Small gifts | £250 per person | Not with another exemption for the same person |
| Wedding or civil partnership | £5,000 / £2,500 / £1,000 | Child / grandchild or great-grandchild / anyone else |
| Regular gifts from income | No set limit | Must meet all three conditions below |
Gifts that are exempt straight away
Gifts covered by an exemption, such as the £3,000 annual exemption, small gifts, wedding gifts and regular gifts from surplus income, leave your estate immediately. The seven-year rule below only applies to the part of a gift that no exemption covers.
The seven-year rule in plain English
An outright gift to an individual that is not covered by an exemption is usually a potentially exempt transfer for Inheritance Tax.
If you survive seven years after making it, the gift will normally fall outside your estate for Inheritance Tax. If you die sooner, it may be brought back into the calculation.
That does not mean every non-exempt gift creates a tax bill when somebody dies within seven years. The calculation depends on the value and order of gifts, the nil-rate band, the estate and any exemptions or reliefs.
Taper relief is often misunderstood. Gifts made in the seven years before death use up the nil-rate band first. Tax is only charged on the part of those gifts above it, and taper reduces the rate on that part, not the value of the gift. Within three years the rate is 40%. It then falls to 32% (three to four years), 24% (four to five), 16% (five to six) and 8% (six to seven). For example, a £400,000 gift is £75,000 over the band. If death comes four and a half years later, the tax on the gift is £18,000 at 24% rather than £30,000 at 40%.
| Years between gift and death | Rate on the part above the nil-rate band |
|---|---|
| Less than 3 | 40% |
| 3 to 4 | 32% |
| 4 to 5 | 24% |
| 5 to 6 | 16% |
| 6 to 7 | 8% |
| 7 or more | 0% |
Regular gifts from surplus income
There is a separate exemption for gifts that form part of your normal expenditure, are made from income and leave you enough income to maintain your usual standard of living.
This can be useful for regular support, such as contributing towards childcare or paying a fixed amount each month. It is not a general permission to label a large capital gift as income.
HMRC may look at the pattern of payments, the source of the money and whether you could still meet your normal spending from income.
Pensions and Inheritance Tax from April 2027
From 6 April 2027, most unused pension funds and pension death benefits will be included in a person’s estate for Inheritance Tax.
A few details matter:
- Pension money left to a husband, wife, civil partner or charity is still exempt.
- Death-in-service lump sums from a job you are still doing are left out.
- The executors, not the pension scheme, will be responsible for reporting and paying any tax.
- If you die at 75 or over, your beneficiaries may also pay Income Tax on what they draw out.
From April 2027, the pension counts towards the estate whether you leave it or draw it and keep the money. Taking it out to give away can add Income Tax now, and you may still need it for decades of retirement. Emptying it is not an automatic answer.
Treat the 2027 change as a reason to review the whole plan, not as a deadline for a rushed gift. You can try your own figures in the Pension Inheritance Tax 2027 Calculator.
Estate implications: the Inheritance & Gifting Calculator lets you add lifetime gifts with an amount and age, switch on Inheritance Tax modelling and set your nil-rate band, residence nil-rate band and the home you plan to leave to children or grandchildren. The result that matters is the estimated Inheritance Tax with and without the gift. Read it alongside your retirement result, not instead of it.
What the Inheritance & Gifting Calculator can and cannot tell you
It shows the estimated Inheritance Tax with and without your gift. It cannot confirm that a gift is affordable, calculate every exemption, predict investment returns or judge what is fair in your family, and it does not replace legal, tax or regulated financial advice.
Potential complications
Each of these is common, and each is easier to deal with before the money moves.
Gift or loan?
Lenders ask whether deposit money must be repaid. If it is a loan, document it as one and tell the lender. Do not call it a gift while privately expecting it back.
Who owns what
Give from an account in the donor’s own name, so it is clear whose gift it is. If your child buys with a partner, ask a solicitor how the home will be owned and how their contributions will be recorded.
Giving your home but living in it
If you keep living there rent-free, it usually stays in your estate for Inheritance Tax. Paying a full market rent can avoid that, but get specialist advice first.
Expectations
Say whether more help may follow, and when. The fairness section below covers how to frame it.
Giving from the floor jar
If the gift leaves too little to pay your floor gap until your reliable income covers your essentials, it is too big or too early. Go back to the comparison.
No record
Your executors may need to prove what was given, when and from what. The checklist below takes ten minutes.
Talk about fairness before it becomes an inheritance argument
One child may need help with a deposit while another already owns a home. You might want the second child to receive an equivalent amount later, or you may decide that support should follow need rather than be equal.
Either approach can work. Silence is the risky part.
Decide whether the gift is:
- separate from future inheritance
- an advance that should be considered when the estate is divided
- one part of a broader pattern of support
If you want the will to reflect earlier gifts, speak to a solicitor and update the documents properly. A family note does not automatically change a will.
Gifting and future care costs
A few years of residential care can cost six figures. Decide whether your buffer or your home would cover it, before you give.
There is no simple seven-year rule that makes gifts invisible for care-fee assessments.
The deprivation-of-assets rules described here are the Care Act framework in England. Social-care charging rules and terminology differ in Scotland, Wales and Northern Ireland, so check the rules where you live.
In England, a local authority can consider whether somebody deliberately reduced their assets to avoid care charges. The timing, health, foreseeable need for care and motivation can all matter.
This does not mean you can never help your family. It means a large gift should not be presented as a guaranteed way to avoid future care costs. If care is already a realistic concern, take specialist advice before transferring assets. Our Care Home Self-Fund Runway Calculator can show how long your own money might cover care fees.
What to record before transferring money
For a meaningful gift, a one-page record is useful even where the family relationship is straightforward.
Include:
- the donor and recipient
- the amount and date
- whether it is an outright gift or a loan
- what the money is for
- which account supplied it
- any Inheritance Tax exemption you believe applies
- earlier gifts that may use the same exemption
- whether the recipient’s lender or solicitor needs a particular declaration
- whether other family members have been told how this affects future inheritance
Keep bank statements, letters and calculations together.
If you are making regular gifts from income, record annual net income, normal spending and the gifts. Do not leave your executors to reconstruct several years of standing orders from bank statements.
Understanding your results
Whichever tool you use, the result usually falls into one of three groups.
The gift looks affordable
Your spending is covered with and without the gift, including under the tougher checks, and you still have the buffer you set. Decide the timing, tell your child what is firm, and write the record. Check again at your review date.
The gift looks marginal
The central case works but a tougher check runs short earlier, or your buffer is thinner than you would like. Try a smaller gift now, a staged gift with a review, or help from income instead, and test each version again before committing. The Retirement Risk Calculator can help you test how market falls, inflation and living longer affect that margin.
The gift looks too large
Your spending runs short in the central case, or there is no longer enough set aside to cover your floor gap. Reduce the amount, delay it or look at other ways to help, such as a Lifetime ISA contribution or paying for something specific. Paying less Inheritance Tax does not make an unaffordable gift affordable.
If the gift is affordable on paper but you still feel uneasy, that matters too. The numbers cannot measure how you feel about market falls, health or losing control of money you spent decades building. Staging the gift is one way to act on that.
Frequently asked questions
How much money can I give my child tax free in the UK?
For Inheritance Tax, each person normally has a £3,000 annual exemption. An unused exemption can usually be carried forward for one tax year. Other exemptions may apply, including certain small gifts and wedding or civil-partnership gifts. You can legally give more than the exemptions, but the excess may remain relevant to Inheritance Tax if you die within seven years.
Can I give my child £50,000 for a house deposit?
Yes. Anything above your available exemptions (up to £6,000 per parent if last year’s was unused) is usually a potentially exempt transfer for Inheritance Tax. More importantly, confirm what the gift removes from your retirement reserve. The buyer should tell their lender, broker and solicitor that the deposit includes a gift and provide the documents they request.
Will my child pay Income Tax on a cash gift?
The receipt of a genuine cash gift is not normally treated as the child’s taxable income. Tax can arise later from interest, investments or assets bought with the money. Inheritance Tax may also become relevant depending on the donor’s death, exemptions and wider estate.
Should I give money now or leave it in my will?
Giving now may help at a more useful stage of the recipient’s life and may eventually reduce the taxable estate. Keeping the money preserves your flexibility and can protect later retirement or care needs. Compare the amount, timing and purpose rather than assuming one route is always better.
Is there a seven-year rule for care fees?
No. The Inheritance Tax seven-year rule is not a care-fee rule. A local authority may consider the motivation, timing, health and foreseeable need for care when assessing deliberate deprivation of assets. The rules differ across the UK.
Should I use pension tax-free cash to help my children?
Only after considering what the pension money needs to do for your own retirement. Tax-free cash is part of your pension, not extra money. Taking it may reduce future pension assets and investment growth. Compare using pension money with cash, ISAs, staged help or waiting until other income begins.
Sources and further reading
| Source | Claim supported |
|---|---|
| GOV.UK: How Inheritance Tax works on gifts | Annual exemption, carry-forward, small gifts, seven-year treatment and general gift rules |
| HMRC Inheritance Tax Manual: normal expenditure out of income | The three conditions for the exemption: normal expenditure, paid from income and enough income left to maintain the usual standard of living |
| GOV.UK: Inheritance Tax thresholds and rates | Current £325,000 nil-rate band and published threshold dates |
| GOV.UK: Inheritance Tax on pensions technical note | Most unused pension funds and death benefits are brought within estates for Inheritance Tax from 6 April 2027 |
| GOV.UK: Care and support statutory guidance | England’s Care Act framework, including Annex E on deprivation of assets |
| MoneyHelper: Inheritance Tax rules on gifts | Plain-English explanation of gifts, exemptions, taper relief and when professional advice may be appropriate |
| Resolution Foundation: inheritance projection (2017) | A 2017 projection that 61 was the most common age at which people then aged 20 to 35 would inherit |
| ONS: Intergenerational transfers (2018) | Observed survey data for 2014 to 2016: people aged 55 to 64 were the most likely to have received an inheritance |
| IFS: Inheritances and inequality within generations (2020) | A projected average age of 64 at the death of the last surviving parent for people in England born in the 1980s |
| GOV.UK: Passing on thresholds to a spouse or civil partner | Transferring unused nil-rate and residence nil-rate bands, and the claim conditions |
| HMRC: Inheritance Tax on unused pension funds and death benefits | Pension changes for deaths from 6 April 2027 |
| Plan Hub: how it works | Plan Hub’s inputs, tax treatment and stress checks |
| Bill Perkins, CNBC (2020), and Die With Zero (2020) | Giving while alive and planning experiences deliberately |
| GOV.UK: The new State Pension | Full new State Pension of £241.30 a week in 2026/27 |