Gifting to Children & Grandchildren: easing today’s costs and planning for IHT
I’m having lots of conversations right now about gifting. Parents and grandparents want to help with the cost of living, school fees, or that first-home deposit — and they also want to keep an eye on inheritance tax (IHT). It’s a balancing act: support the family while they need it, without putting your own future at risk.
We should also recognise the generational picture. Millennials, Gen X and Gen Z face a very different landscape to many Baby Boomers: higher housing costs, childcare fees, and tighter budgets. At the same time, frozen IHT thresholds and rising property values mean more families risk being pulled into the inheritance tax net, especially from April 2027 when pension funds will also be included. Thoughtful gifting can help on both fronts, it cascades wealth to where it’s needed now and can reduce a future IHT bill.
Why gifting now can make sense?
The right gift at the right time can be more valuable than a larger inheritance years down the line. It can relieve pressure on day-to-day cashflow, keep a child or grandchild in the school that’s working for them, or bring a first home into reach sooner. With a balanced plan, and the right records, it can also fit neatly into your estate planning.
For completeness, the broad rules many families use are familiar: annual exemptions, regular gifts out of surplus income, and larger gifts that usually become IHT-free after seven years. Trusts can add control where needed, though they come with extra administration. The best route really does depend on your goals, time horizon and cash position, and we’ll model that with you so nothing feels like a leap in the dark.
Case study 1: Helping with school fees (and reducing IHT at the same time)
Peter and Lynda, grandparents in their late 60s, wanted to help their two grandchildren with school fees. Their income was comfortably above their spending, so we explored using regular gifts from surplus income. Together we mapped their monthly inflows and outflows, agreed an affordable amount, and set up a standing order to their daughter to contribute towards school fees. We also kept simple records: bank statements, a short note explaining the intention, and a summary of income vs outgoings.
The result? The children stayed in a school that suits them, the parents’ budget felt far less stretched, and the gifts were immediately outside Peter and Lynda’s estate for IHT purposes because they were regular and from surplus income. Most importantly, our cashflow plan showed Peter and Lynda could do this without compromising their own lifestyle or longer-term care plans.
Case study 2: A deposit gift — with eyes open to the seven-year rule
Anita and Raj, both early 60s, wanted to gift £80,000 to their son for a first-home deposit. We started with a cashflow review: could they give the lump sum and still retire when they wanted? Yes, but only if they kept within the remit of the cautious assumptions we had modelled for the next few years. We had exaggerated their expenditure slightly and accounted for inflation, using a relatively modest growth rate within their pensions, as a result we were confident they could afford to help their son.
We then talked through Potentially Exempt Transfers (PETs). A gift to an individual is usually IHT-free if the donor survives seven years; if death occurs sooner, taper relief may reduce the tax after year three (it tapers the tax, not the gift). Anita and Raj were comfortable with that. We drafted a simple gift letter for the mortgage lender, recorded the date and source of funds, and noted the gift in their estate plan. A year later, they reviewed matters again, still on track, still comfortable. Their son is now settled in his home; Anita and Raj feel they’ve helped at the time it mattered.
What to consider before you gift
Your security first. A gift should never leave you anxious about your own retirement, future care, or emergencies. We’ll run the numbers to show the impact in today’s pounds, not guesswork.
Choose the right route. Regular support for school fees may suit the surplus-income approach; one-off help for a deposit is often a PET. Where control or protection is needed, a trust might be appropriate, with legal/tax advice alongside.
Keep it tidy. Simple records make executor work easier and help if HMRC ever asks questions: what you gifted, to whom, when, and for surplus-income gifts you also need the affordability trail as you need to demonstrate that the regular gifts did not reduce your standard of living,
A balanced word on IHT and the family home
Many families are “asset-rich and cash-tighter” because so much value sits in property. With IHT thresholds frozen and house prices higher than a decade ago, more estates are brushing the limits. Sensible IHT planning isn’t about giving everything away; it’s about measured gifting, coordinated wills, and sometimes protection (the use of a life insurance policy for liquidity) so your family isn’t forced to sell sentimental or long-term assets at the wrong time.
How ERF can help
At Ella Rose Financial, we’ll start with a balanced conversation about what you want to achieve for your children and grandchildren, and what “secure” looks like for you. Then we’ll build a tailored cashflow plan to show what’s affordable, when, and how different gifting strategies interact with inheritance tax. We’ll help you choose the right structure (from simple transfers to regular surplus-income gifts, or trusts where appropriate), coordinate with your solicitor on wills and letters of wishes, and keep everything under regular review. Our work is delivered on a transparent fixed-fee basis, so the focus stays on what’s right for your family, not the level of assets under management.
This article is for information only and is not personal advice. Tax and trust rules can change and their impact depends on your circumstances. Gifts and trusts can have legal and tax consequences; seek regulated advice. Investments can fall as well as rise and you may get back less than you invest.