If you are a parent or grandparent, you may already be thinking about how best to provide for your family in the years ahead.

This could mean planning the financial legacy that will one day pass to your children but also considering how to support them during your lifetime, perhaps especially at key moments such as buying a first home. This is known as lifetime gifting – passing on money, property or other assets while you are still here to see the benefits, rather than waiting until death.

With rising living costs and growing awareness of Inheritance Tax changes ahead, many people are now exploring whether giving financial help earlier could be a more effective and meaningful way to support the next generation.

 In this article, we outline the key points to consider before gifting money, so you can plan confidently for your family’s future.

Why more families are considering lifetime gifting

Economic pressure on the younger generations 

According to the Institute for Fiscal Studies, home ownership among 25 to 34 year olds is still around 20% lower than it was in 2000, despite a modest recovery in recent years. At the same time, rising household costs have continued to squeeze finances across the UK.

Figures show that household costs rose by 3.9% in the year to June 2025, an increase from 2.7% from the previous quarter. This makes saving for a house deposit increasingly challenging for young people. Many  are finding the dream of owning a home more distant and support from family can make a significant difference.

Growing awareness of Inheritance Tax 

Inheritance Tax (IHT) is increasingly becoming a concern for families in the UK. Rising property values and frozen tax allowances mean that estates which historically would not have attracted IHT may now do so.

When someone dies, their ‘estate’ is the total value of everything they own, such as their home, savings, investments and personal belongings, minus any debts or liabilities. The UK Government recently announced within their 2025 Autumn Budget that the threshold before paying IHT will remain at £325,000 and the residence nil-rate band is unchanged at £175,000 until April 2031.

Once the value of an estate exceeds the tax-free allowances available, IHT (currently set at 40%) is payable on the amount above these thresholds.

Recently the Government announced that from April 2027, certain pensions that were previously outside the scope of IHT will instead be treated as part of a person’s estate for tax purposes.

This is likely to bring even more families into the IHT ‘net’ or increase the liability faced by estates that would already be taxable. Many ‘ordinary families’ who live in the south of England may find that the value of their home plus modest savings and a private pension will now nudge them above the thresholds.

This evolving landscape has led many parents and grandparents to consider whether it may be more efficient and meaningful to support loved ones financially during their lifetime, rather than waiting until their estate is distributed after death.

What can you gift and how do the rules work?

If you would like to make a financial gift to your children, there is no limit on the amount you can give away during your lifetime.

You can gift:

●       money

●       investments

●       property

●       personal items

Larger gifts will be taken into account for tax purposes if you die within seven years of making them. This is commonly known as the seven-year rule. If you survive seven years after making a gift, it typically falls outside of your estate for inheritance tax.

If you die sooner, some or all of the value may still be counted, although the potential tax effect reduces gradually after year three.

For example:

You gift your child £20,000 to help them buy their first home.
If you live for seven years after this gift, it falls outside your estate for IHT.
If you pass away sooner, the gift may still be considered, but the potential tax effect reduces the longer you live beyond year three.

This approach can offer dual benefits: reducing the value of your estate for IHT purposes and supporting your child at a time when property affordability is a challenge. There are also smaller annual gifting allowances that are immediately free from IHT. You can give away money or gifts up to a total of £3000 without them being added to the value of your estate, as well as carrying forward any unused portion of this £3000 allowance from the year before (but only for one year). You are also allowed to make multiple small gifts of up to £250 to different people.

To find out how Inheritance Tax works, the thresholds, rules and allowances, you can visit the gov.uk website or visit MoneyHelper.com’s useful online guide. You can also find out more about the current annual gifting allowances.

The practical considerations of lifetime gifting

Lifetime gifting is rarely just about careful tax planning. Many parents choose to gift to help with key milestones, like buying a home or welcoming a new baby. However, when making a lifetime gift, it is vitally important that sufficient funds are kept aside to ensure future financial security.

If you are contemplating making a lifetime gift, you may find it useful to think about the following:

●       How much you need to fund your lifestyle and future plans

●       Whether you may need additional support or care later in life

●       Keeping a safety buffer for unexpected events such as house repairs

●       Whether smaller or phased gifts feel more comfortable

●       How to approach fairness if you have multiple children with different needs

Balancing generosity with your future needs

Even when finances appear healthy, life can bring surprises. If you wish to help your children now, it is equally important to feel confident that your own future needs are protected.

As you get older, health or care needs may arise and you could need to adapt your home or fund some kind of extra support. Keeping a financial reserve helps you to maintain independence and flexibility. This does not mean you should avoid gifting, but it emphasises the importance of retaining enough for your own security.

Some families choose phased gifting. This means smaller, regular gifts rather than one large lump sum. This allows you to support your child gradually while keeping control of your finances and adjusting plans if circumstances change.

This approach can also help manage the implications of Inheritance Tax, as each gift starts its own seven-year ‘clock’. Others prefer to make a soft loan, allowing flexibility to reclaim funds if needed later in life. There is no single right approach; the key is choosing what feels appropriate for your situation. If you do decide to gift, it should feel considered and not rushed.

The rules around IHT and tax are complex, so take advice from a specialist financial or tax adviser. This should help you understand how gifting fits within your wider plans and provide reassurance that your generosity remains sustainable.

What to consider if your adult child is married or in a relationship
It is natural to think about what would happen to your lifetime gift if your child is in a relationship or buying a property with a partner. If that relationship later comes to an end, how might your gift be treated?

Could part of it – or even all of it – end up forming part of a financial settlement and be passed to their partner? These are sensible questions to think about before transferring significant sums.

Lifetime gifts and divorce

Money or assets given to a married adult child can sometimes be treated as non-matrimonial, particularly if the intent is clearly documented at the time the gift is made.

However, if money is used to purchase a shared marital home, for example, the situation is more complex.

If your adult child is involved in a needs-based divorce, considering aspects such as where their dependent children must be housed, the family court has wide discretion. This means that even if you intended a lifetime gift to be solely for your adult child, it may still be factored in and used to meet the family’s housing needs after the end of the parents’ relationship.

However, where the family’s needs are otherwise met, clear legal documentation can help preserve the intention of your financial gift, ensuring that it does not pass to their ex-partner in the event of divorce or dissolution of a civil partnership.

Safeguarding a lifetime gift when relationships are involved
Before making a significant gift, there are several practical steps you and your adult child can take to help ensure the funds remain protected and treated as intended if circumstances should change.

This includes:

●       offering a loan rather than a gift

●       keeping the gifted funds separate from joint finances (if they are not used immediately)

●       using a solicitor to draw up:

• a Declaration of Trust - a legally binding document that sets out how a property is owned
  a pre-nuptial or post-nuptial agreement - which can help clarify that a financial gift from parents is intended for their child alone, rather than being shared if the couple later separates
• While not automatically binding in England and Wales, pre-nuptial and post-nuptial agreements can be given significant weight by the courts, as long as they are entered into freely, fairly and with proper disclosure. You can find out more in our recent article about pre-nuptial agreements. These legal measures provide clarity and, in the event of the breakdown of a relationship, can help avoid disputes over gifted or inherited money.

Here to support you

Lifetime gifting is a thoughtful way to support your loved ones at the right moment in their lives and can be a useful strategy to manage the future value of your estate for IHT purposes.

With the right planning, you can give in a way that feels both fair and secure. Taking time to consider possible future scenarios and implications will help you to make confident decisions.

Before making a substantial lifetime gift, it’s always advisable for you and your adult child to take joint early advice from a family law solicitor.

KJ Smith Solicitor’s estate planning and wealth management team can help you understand your options. Where financial gifts relate to property or an adult child’s relationship, our family law team can also advise upon the necessary protective steps that will help safeguard your legacy.

We offer a free 45-minute consultation to help you consider your options and move forward with clarity. This offers an opportunity to talk through your plans and begin shaping an approach that feels right for you and your family.