More people are looking to offload their finances now to avoid their families facing large inheritance tax bills in the future
There has been a spike in parents giving their children large sums of money for housing deposits, many in a bid to avoid high inheritance tax charges in the future.
Some 110,325 buyers received at least £100,000 from a family member last year, up 8 per cent from 102,546 in 2023, according to tech company Twenty7tec.
Experts say many are choosing to gift their money now, often in the form of such deposits, to avoid leaving family members with hefty inheritance tax (IHT) bills after they die.
Duncan Bailey, head of private client and charity at legal experts, Brabners Personal, said he had seen an increase in clients asking about gifting.
He said: “While there once was a massive disincentive to spend the money from pensions because of the IHT treatment on death, the changes from April 2027 have completely upended this.
“That means we’ll see people spending more while living and looking to enjoy the fruits of their hard savings, as well as looking for ways to treat their loved ones.
“It’s also becoming increasingly common to see grandparents or parents giving lump sums to their adult children, which can include large housing deposits to help loved ones get onto the property ladder or upsize.”
The new rules, announced in last October’s Budget, mean pensions will be counted as part of someone’s estate from April 2027 – leading to a surge in people gifting their money away whilst they’re alive to avoid or reduce the bill.
As long as parents live for seven years after making the gift, it will not be liable for IHT.
Sarah Phillips, a partner at Irwin Mitchell’s Private Client Advisory team, said: “We’ve seen a surge in clients eager to help relatives get on or move up the property ladder.
“It’s usually parents and grandparents stepping in, driven by the desire to assist and save on inheritance tax.”
Additional data from Savills shows that gifts and loans from parents used for house deposits totalled £9.3bn in 2024, nearly double the £5bn in 2019. The average value of assistance hit a high of £57,317 in 2023, up from £22,137 in 2006.
Douglas & Gordon, the London-based estate agents, said that from November 2024 to March this year, there has been a significant uplift in successful parents giving their kids a leg up on the housing ladder.
They also help “second steppers” by making large contributions to small houses in the capital.
James Evans, the firm’s CEO, said: “With many big employers requiring people back in the office five days a week, London property and living is back on the agenda for the young. This has put paying for it on the agenda for their parents.
“We’re seeing a significant number of mums and dads moving their wealth through the generations to counteract current challenges. We expect this trend to develop still further as many opt out of stocks and shares and into bricks and mortar.”
Things you need to bear in mind before gifting
Although gifting is now a popular way for families to avoid potential IHT charges in the future, experts say there are things people need to keep in mind.
Ms Phillips said: “To avoid future issues with the relative, their connections or HMRC, it’s crucial to get professional advice on whether the contribution is a gift, a loan, or a share purchase. Each option has distinct legal, tax, and financial implications.
“While gifting directly to the relative is often the most tax-efficient, it might not be ideal if the donor can’t afford it long-term or wants to protect the gift from creditors or a divorcing spouse.
“Donors should also consider how to balance giving similar amounts to other relatives and understand who might pay IHT if they pass away within seven years.”
Mr Bailey added that while a “giving while living strategy” seems straightforward in theory, some areas need attention.
He said: “This includes not leaving yourself short of money in later life by ‘giving’ too much or too large of a lump sum – crucial given how long many of us are now living.
“Additionally, there’s a tricky balance to strike as the IHT changes come into fruition in April 2027, so you could be worse off ‘giving while living’ if you then passed away before that date. However, by not doing anything for two years could also mean any gifting of the withdrawn pension will take longer to clear the usual seven years survivorship rule.
“Those kinds of hurdles can both be unexpected and difficult to navigate, so it’s important to consult an experienced legal and financial advisor to protect your wealth and best secure the futures of your loved ones.”
