Many retirees want to help their children or grandchildren while they are still around to see the difference it makes. That help might be a house deposit, university support, wedding costs, school fees, a first car, or simply a financial cushion at a difficult time. For many families, gifting during life can feel far more meaningful than leaving everything through a will.
But generosity works best when it is planned.
Start With What You Can Afford
The first question is not tax. It is affordability. Can the gift be made without affecting your own income, emergency fund or financial independence? A gift that feels manageable today may feel different if circumstances change, such as market falls, rising costs, health issues or the death of a partner. This is where a financial adviser can be particularly helpful. By looking at your wider financial position and future income needs, including possible “what if?” scenarios, they can help you understand what may be affordable, what may be too much, and how a gift could affect your long-term security. Once money has been given away, it may be difficult or impossible to get it back, though there are solutions available through the use of trusts to help mitigate some of this risk.
Understand the Tax Rules
Tax still matters, but it should not be the only reason for making a gift. Some gifts may still be considered for inheritance tax if the person making the gift dies within seven years, so timing and record-keeping are important. There are also useful exemptions and allowances available, including annual gifting allowances, certain gifts for weddings and the option, in some circumstances, to make regular gifts from surplus income. These rules can be very helpful, but they work best when the gifts have been planned properly and recorded clearly.
Keep Clear Records
Records are often overlooked. If regular gifts are being made from income, executors may later need evidence that the gifts were affordable from surplus income and did not reduce the donor’s normal standard of living. Keeping notes of dates, amounts, recipients and the reason for gifts can make life easier for the people dealing with the estate.
Think About Fairness as well as Equality
There is also a fairness question. Equal is not always the same as fair. One child may need help with a deposit, another may be financially secure, and another may have received support years earlier. Grandchildren may be at different stages. A gift made for loving reasons can still create tension if nobody understands the thinking behind it. Some families prefer to discuss their intentions; others prefer privacy. Either way, the reasoning should be clear to the person making the gift.
Be Clear About Control
An outright gift is simple, but once given, the recipient can usually use it as they choose. That may be fine. But concerns about divorce, bankruptcy, financial immaturity, addiction, relationship problems or means-tested support may make direct gifting less comfortable. This is another area where advice can be valuable. In some cases, trusts or structured arrangements may be worth considering, as they can sometimes allow money to be set aside for family while keeping more control over when and how it is used. Trusts can also help protect against some of the risks that come with outright gifting, but they do bring extra complexity, costs, tax considerations and administration, so they should be considered carefully rather than used casually.
Protect the Relationship, Not Just the Money
Gifting can also change the relationship between generations. A gift with strings attached may not feel like a gift. A gift given quietly but then mentioned repeatedly may create discomfort. A gift that rescues someone from every poor decision may reduce financial responsibility. The best gifts tend to be clear, affordable and aligned with family values.
There is a bigger thought here. Many people spend decades building wealth carefully, then hesitate to use it meaningfully during life. If a well-planned gift can help a loved one buy a home, reduce stress, pursue education or feel more secure, it may bring joy to both sides.
So the question is not simply “How much can I give away tax-free?”, It is: what can I afford to give, why am I giving it, and how can I do it in a way that helps my family without creating problems later?
Your adviser will discuss your inheritance tax position and gifting options with you as part of your regular review. These conversations can be really helpful in making sure any gifts are affordable, well thought through and properly recorded. If you know someone else who may benefit from a similar discussion, please feel free to pass on this article and our contact details. We would be pleased to help.
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