For many parents and grandparents, helping the next generation financially is becoming an increasingly important part of estate planning.

You may want to help with a house deposit, repay a mortgage, contribute towards school fees or simply pass some wealth to your family while you are still around to see them enjoy it.

But a common question is:

“How much am I allowed to give away?”

The simple answer is that, generally, you can give away as much of your own money as you wish.

The more important question is what the tax and wider financial consequences of making the gift might be.

The £3,000 annual exemption

For Inheritance Tax purposes, individuals currently have an annual gift exemption of £3,000.

If the previous year’s exemption wasn’t used, it can generally be carried forward for one year.

There are also various other exemptions, including certain small gifts and gifts made in connection with weddings or civil partnerships.

But this doesn’t mean you are limited to giving away £3,000 each year.

What if I want to give away £50,000 or £100,000?

You can.

A larger outright gift to an individual will normally be treated as a potentially exempt transfer for Inheritance Tax purposes.

Broadly, if you survive for seven years after making the gift, its value will normally fall outside your estate for Inheritance Tax purposes.

If you die within seven years, the gift may need to be taken into account when calculating the Inheritance Tax position.

The rules surrounding tax on lifetime gifts can become complicated, particularly where substantial gifts have been made, so records of larger gifts should always be retained.

Can I make regular gifts from my income?

This is one of the most useful – and sometimes overlooked – Inheritance Tax exemptions.

Certain gifts made as part of your normal expenditure out of income can potentially be immediately exempt from Inheritance Tax.

There are conditions.

Broadly, the gifts need to form part of a normal pattern of expenditure, be made from income and leave you with sufficient income to maintain your normal standard of living.

For someone with income significantly exceeding their normal expenditure, this can provide an opportunity to pass wealth to the next generation without necessarily starting a seven-year clock each time.

Good record keeping is particularly important if this exemption is being relied upon.

Tax isn’t the only consideration

Before making a substantial gift, it is worth considering what happens to the money afterwards.

Once you make an outright gift, it belongs to the recipient.

That sounds obvious, but the consequences can sometimes be overlooked.

What would happen if your child subsequently divorced?

What if they experienced financial difficulties?

What if they died unexpectedly?

What if they simply spent the money in a way you hadn’t anticipated?

For relatively modest gifts, these issues may not be a major concern. For substantial transfers of family wealth, however, it may be worth considering whether an outright gift is the most appropriate approach or whether some form of trust planning should be considered.

Don’t give away money you may need yourself

There is another person who needs to be considered when making lifetime gifts:

You.

Reducing a future Inheritance Tax bill is of little benefit if you subsequently find that you don’t have enough money to enjoy your retirement or meet unexpected expenditure.

You should therefore consider your likely future income, capital requirements, housing needs and potential care requirements before making significant gifts.

Estate planning should never simply be about giving away as much as possible.

Giving during lifetime can be rewarding

There can be something particularly satisfying about helping children or grandchildren during your lifetime.

Rather than leaving an inheritance many years in the future, financial support might make the greatest difference when someone is buying their first home, raising a young family or building a business.

The key is to make those gifts as part of a considered plan.

Think about:

• how much you can comfortably afford;
• whether there are any tax consequences;
• whether the gift should be outright or protected in some way;
• what records should be retained; and
• how the gift fits with your Will and wider estate plan.

The question therefore isn’t simply “Can I give money to my children?”

In most cases you can.

The better question is “What is the most appropriate way for me to do it?”

If you are considering making a substantial lifetime gift, taking advice before transferring the money can help ensure that the gift achieves what you intended without creating unintended consequences elsewhere.

About Kevin Barrett

Kevin Barrett leads the estate planning service at Ad Valorem Estate Planning. A qualified accountant who ran his own practice until 2025, Kevin has many years’ experience helping individuals and families plan for the future.

He provides clear, practical advice on Wills, Lasting Powers of Attorney, trusts, inheritance tax and wider estate planning, with a focus on helping clients protect their wealth, their wishes and the people who matter most.

(E) enquiries@advaloremgroup.uk (T) 01908 219100 (W) advaloremgroup.uk