Bank of Mum & Dad helping to keep children afloat with ‘living inheritances’

Inheritance Tax

Bank of Mum & Dad helping to keep children afloat with ‘living inheritances’It is well known that the ‘Bank of Mum & Dad’ has turned into one of the UK’s largest lenders, helping thousands of first-time buyers get on to the housing ladder. However, new research has shown just how helpful it has been in keeping Generations X and Y financially afloat.

For the uninitiated, Generation X is a term used to group people born between the mid-1960s and mid-1970s, with Generation Y broadly covering the following 10-year period.

Financial gifting is on the rise

The study, by Retirement Advantage, found that a significant number of those people in Generation X and Y are receiving gifts, or ‘living inheritances’ from their parents.

The concept of inherited wealth is nothing new. However, younger generations are struggling to make ends meet, asset values of older generations are rising and the amount of Inheritance Tax (IHT) being paid is increasing. Therefore, it is little wonder that more money is being given away by people while they are still alive.

Retirement Advantage found that 39% of people over the age of 50 have provided financial help to their children or grandchildren during the past six months. The top reasons given were:

  1. Birthdays 25%
  2. The cost of university 23%
  3. General loans 22%
  4. Paying off debt 19%
  5. A house deposit 18%

Commenting on the research, Andrew Tully, Pensions Technical Director at Retirement Advantage, said: “Living inheritances are clearly helping out cash-strapped children and grandchildren who may be struggling with the day-to-day cost of living.”

Is ‘living inheritance’ right for you?

It’s only natural that parents and grandparents want to help their children. However, where the heart says ‘yes’ the head sometimes needs to provide a reality check.

Before you take the leap and make a monetary gift to your children or grandchildren, it’s important to take a step back and ask one simple question: Can you afford to do without that money?

That question must be asked about the short, medium and long-term to ensure that the gift you make won’t detrimentally affect your future standard of living.

Questions to ask yourself

Once you have concluded you can make the gift, it’s then make sure it is made in the most efficient way possible. For example:

  • If the money is coming out of your pension, how can it be withdrawn, so as little tax as possible is payable?
  • If you are hoping to reduce the Inheritance Tax (IHT) due on your death, how can the gift be made so this aim is achieved?
  • If the gift is to your child or grandchild, and their current partner, how can you make sure it stays in the family if they split up or divorce?

This is where financial planning can help.

If you are thinking of providing financial assistance to your children or grandchildren, we can help you answer these two questions, plus any others you have.

We are here to help. Call Sarah or Bev on 0115 933 8433 or email