While we’re not always comfortable talking about money, increasingly people want to explore the best way to pass wealth to loved ones. With many of us reviewing our finances, this could be the right time to sit down together for an honest conversation, whether in person or on a call.

Gifting money to children 

More and more people are keen to give money to the family while they’re still around to see the benefits, rather than just thinking of the inheritance they may leave behind. This approach brings the advantage of ensuring your children or grandchildren have financial support at key stages of their life, while you can watch them enjoy it. Sharing money from retirement savings is one way of doing this, but if you’re a homeowner, you could also consider unlocking cash from your home by downsizing or using equity release

Gifting money is sometimes known as a ‘living inheritance’, and it’s often life’s big events that prompt people to share money in this way. For example, paying for a wedding, contributing towards university fees, or providing money to start up a new business.

Bank of Mum and Dad  

You may have heard of the ‘Bank of Mum and Dad’. With challenging times ahead of us economically, young people borrowing money from their parents may become even more prevalent. As of July 2021, over 200,000 people aged 24 or under were on furlough, and the number of young people in employment had fallen by 7% since pre-pandemic levels.

The Bank of Mum and Dad

Read how the pandemic affected families in 2020.


Gifting money for a house deposit  

We spoke about sharing money in series one of our Rewirement podcast series on modern retirement. Some of our guests had helped their children buy their first property. One guest’s daughter is now paying £200 per month less on her mortgage than she was on rent.

It’s common for many parents and grandparents to want to help their children and grandchildren get on the property ladder. While downsizing can be a cost-effective way to free up funds, another option for those who aren’t looking to move house, is equity release

During one Rewirement podcast episode, one of our expert guests noted that we can underestimate our own spending habits. Financial expert Jasmine Birtles recommended that anyone considering gifting money should look at their last year’s bank statements, to gauge how much they’ll need to finance their desired lifestyle. You should gift sensibly to avoid compromising your own standard of living, she added. Make sure you don’t leave yourself short.

The value of advice 

Speaking to a financial adviser is highly recommended, as they can provide expert advice on your specific circumstances, and help with the complexities of gifting money. Finding someone you trust can be highly beneficial. Visit unbiased.co.uk to find out more. There are tax implications to consider when gifting money to family members and these can impact the timing and amount of money given. You can give away £3,000 worth of gifts a year without any issues around inheritance tax and there are some other exemptions.  

A key benefit of passing money on while still alive is that an outright gift is classed as a potentially exempt transfer (PET) for Inheritance Tax (IHT) purposes. This means that IHT will only apply if the donor dies within seven years of making the gift, which is a key point to remember. These tax benefits could be an incentive to start making plans before it’s too late. 

Today’s retirement is very different from that of previous generations, largely because the fact we’re living longer, means retirement is a 20 or 30-year event for most people. It’s therefore essential to consider your life expectancy when thinking of sharing money. But our increased longevity also provides a huge opportunity for retirees to watch their children and grandchildren really enjoy their legacy first-hand.

Published: October 2021