‘Don’t leave it too late to pass on your inheritance – best time could be today’

There was still an awful lot to decide, such as who gets what, and how to minimise exposure to death duties or inheritance tax. But the assumption was that money and assets would only transfer after you’d gone. That’s not the case today. Increasingly, grandparents and even parents are looking to pass money to loved ones while still alive. There are benefits for the person doing the gifting, as they get to see their wealth do some good for the people they love. You can also help ensure the beneficiary deploys your money wisely.

There can be tax advantages, too. An outright gift to another individual will generally be treated as a potentially exempt transfer for inheritance tax (IHT) purposes. If you survive for seven years after making the gift, it will normally become exempt from IHT. But there are risks. Recipients may not be as grateful as you’d like, anyone left out may feel resentful, and you need to retain sufficient funds for yourself. So it needs thinking through.

Rakhee Wood, founder and independent financial adviser at Butterfly Financial Planning, said “there is a lot to be said for giving with warm hands rather than cold hands”, and many of his clients derive great pleasure from gifting during their lifetime. “That might mean helping children or grandchildren with a first home, childcare or starting a business, at a time when the money can make a real difference. And you get to see the benefit of it.”

Scott Gallacher, chartered financial planner at Rowley Turton, said receiving £50,000 at 60 is welcome, but at 30 or 35 it could be transformational. “It might provide a deposit for a first home, allow a family to extend rather than move, provide financial breathing space during maternity or paternity leave, or help someone start a business.”

That’s a compelling argument for giving early, but he said there is an important qualification. “Don’t give away money you may later need yourself. Your own financial security, including the possibility of living to 100 and needing soical care, has to come first.”

You need enough to pay the bills, cope with inflation and unexpected costs, and maintain a decent standard of living. The problem is that nobody knows how long they will live, or whether they will need expensive care later in life. If using lifetime gifts as part of IHT planning, timing matters. An outright gift to an individual is a potentially exempt transfer. If you survive for seven years and it normally falls outside your estate for IHT purposes.

Saving tax isn’t everything. There is little point reducing a future IHT bill if you then run short of money yourself. Once you’ve established that you can afford to give, think about who would benefit most.

If one child is comfortably off while another is struggling to buy a home, you may decide they don’t need the same help. But unequal gifts can cause family friction, so think carefully about how you explain your decisions. You also need to think about whether the recipient is ready for the money. Giving a large sum to a financially inexperienced 18-year-old could backfire.

Martin Rayner, financial adviser at Compton Financial Services, said a simple “bare trust” can be a handy option when helping younger people. “We often see this used for education or university costs. The catch is that the money belongs to the child and they can take control at 18, which can make grandparents wary of building up too large a sum.”

There’s another reason for families to review their plans, particularly if they have substantial pension savings. From 6 April 2027, most unused pension funds and pension death benefits will be brought within the deceased person’s estate for IHT purposes. Nouran Moustafa, an independent financial adviser at Roxton Wealth, said: “Tax should never be the only reason to make gifts.”

There are other practical questions to consider before handing over a large sum. Keep proper records. If making substantial gifts, don’t rely on a conversation around the kitchen table, as recollections can differ. Write down what you gave, to whom and when. This will make life much easier for your executors if you die within seven years.

Think about whether the money should be an outright gift, a loan or held in trust. If you want to retain some control over how and when it is used, consider setting up a trust. Trust planning can work well where a beneficiary is young, financially inexperienced or vulnerable to pressure from others. But trusts bring their own tax and legal rules, so professional advice is sensible.

You should also think about what happens if your child marries and later divorces. If your intention is that the money is specifically for your child, rather than their spouse or partner, you need to structure it carefully. Finally, consider whether a large gift could affect means-tested benefits, university funding, care assessments or the recipient’s own tax position.

Don’t give away money simply because you’re worried about inheritance tax. There’s a lot more to proper financial planning, whenever you give the money.