Should You Leave an Inheritance or Help Your Family Now?

Written by Sarah Cheesman

For many people, being able to leave something behind for their children or grandchildren is an important part of planning for the future. You may have spent decades building up savings, paying off your mortgage and creating something you’d eventually like your family to benefit from.

But what if that support could make a bigger difference to them now?

Perhaps your children are trying to get onto the property ladder, your grandchildren are heading to university, or someone you love could simply do with a little extra financial breathing room. Instead of waiting to leave an inheritance, you might be considering giving some of that money during your lifetime.

There’s something particularly rewarding about being able to see your family benefit from your help. However, giving away a significant amount of money is also a big financial decision, and your own future needs need to come first.

So, is it better to leave an inheritance or help your family now? There’s no single right answer, but understanding your options can help you decide what feels right for you.

Why Some People Choose to Help Their Family Now

The point at which someone receives an inheritance isn’t necessarily the point at which they need financial help the most. For younger generations, some of life’s biggest expenses often arrive relatively early. Buying a first home, starting a family, getting married or paying for education can all place considerable pressure on household finances.

For parents and grandparents who are in a position to help, gifting money during their lifetime can therefore have an immediate and meaningful impact. A contribution towards a house deposit, for example, could help a child or grandchild take a step they might otherwise have struggled to afford.

There’s also the emotional side. Rather than leaving money behind without ever seeing how it’s used, you have the opportunity to share in the difference it makes, whether that’s watching someone collect the keys to their first home or helping make life a little more comfortable for the people you care about.

That doesn’t mean giving money now is always the better choice, though. Keeping hold of your assets may give you greater financial security and flexibility as you get older, which is why it’s important to look at the bigger picture before making a decision.

Gifting Money Now vs Leaving an Inheritance

Both options have advantages, and the right approach will depend on your circumstances, finances and priorities.

You don’t necessarily have to choose one or the other, either. Some people may decide to provide a smaller amount of support during their lifetime while still keeping enough assets to leave an inheritance later.

The important thing is finding a balance that allows you to help the people you love without putting your own financial wellbeing at risk.

What Should You Consider Before Gifting Money to Your Children?

It’s natural to want to help your family, particularly if you can see that some extra financial support could make a genuine difference. Before giving away a substantial sum, however, you need to consider what you might need yourself in the years ahead.

Retirement can last for decades, and your financial needs may change along the way. Everyday living costs, home maintenance and unexpected expenses all need to be considered, alongside the possibility that you may need additional support or care later in life.

You should also think about whether you’d be comfortable permanently giving up access to the money. Once you’ve made an outright gift, you generally can’t assume you’ll be able to get that money back if your circumstances change.

Family dynamics can matter too. If you have more than one child or grandchild, you may want to think about whether gifts should be equal, whether they’ll affect what you leave in your will and how you’ll communicate your decisions to the rest of the family.

Taking some time to consider these questions can help make sure your generosity today doesn’t create financial difficulties for you tomorrow.

What Are the Tax Rules Around Gifting Money?

You can give money to your children or other family members during your lifetime, but there are Inheritance Tax rules to be aware of.

Under current rules, you have an annual gifting exemption of £3,000 each tax year. Any unused annual exemption can be carried forward for one tax year. There are also separate allowances for certain smaller gifts and gifts made for weddings or civil partnerships.

Larger outright gifts to individuals are generally considered potentially exempt transfers. If you live for seven years after making the gift, there’s normally no Inheritance Tax to pay on it. If you die within seven years, however, the gift may need to be considered when calculating Inheritance Tax. The exact position depends on factors including the value and timing of your gifts.

There are also rules covering regular gifts made from income. These may be exempt from Inheritance Tax where they meet certain conditions, including that they’re part of your normal expenditure and leave you with enough income to maintain your usual standard of living.

Tax rules can be complicated and everyone’s circumstances are different, so if you’re considering making substantial gifts or are concerned about the tax implications, it’s worth speaking to an appropriately qualified tax or financial adviser.

Could Your Home Help You Support Your Family?

For many people approaching or already in retirement, their home is one of their most valuable assets. You may therefore have considerable wealth tied up in your property without necessarily having the same amount readily available in savings.

If you’re aged 55 or over and own your home, one option you may consider is equity release. A lifetime mortgage, for example, can allow you to access some of the value tied up in your property while continuing to live there.

Some homeowners use money released from their property to provide financial support to children or grandchildren, perhaps towards a first home or another significant life event.

However, releasing equity to give money to your family is a decision that needs careful consideration. A lifetime mortgage is secured against your home and interest can build up over time, so it will reduce the value of your estate. It could also affect your entitlement to means-tested benefits. 

That’s why it’s important to consider alternatives and understand the long-term implications before deciding whether equity release is right for you.

Helping Your Family Without Losing Sight of Your Own Future

Being able to help the people you love can be incredibly rewarding, particularly when you’re there to see the difference that support makes, but there’s no need to put your own financial security at risk in order to do it.

Whether it’s better to give money now, leave an inheritance later or combine the two will depend on your circumstances and what matters most to you.

If you’re considering using some of the value tied up in your home to support your family, Access Equity Release can help you understand your options. We’ll take the time to understand your circumstances, explain everything in plain English and look at whether equity release or another regulated borrowing option could be suitable.

Get in touch with our friendly team for a no-obligation conversation about your options.

Frequently Asked Questions

Can I Give My Children Money Before I Die?

Yes. You can give money to your children, grandchildren or other people during your lifetime. Depending on the amount, timing and circumstances of the gift, there may be Inheritance Tax considerations, so it’s important to understand the rules before making a substantial gift.

How Much Money Can I Gift to My Children Tax-Free?

Under current Inheritance Tax rules, you can use an annual exemption to give away a total of £3,000 each tax year without it being added to the value of your estate. Unused allowance can be carried forward for one tax year. Other exemptions may also apply depending on the type of gift.

What Is the Seven-Year Rule for Gifting Money?

Generally, if you make an outright gift to another person and live for at least seven years afterwards, there’s normally no Inheritance Tax to pay on that gift. If you die within seven years, the gift may be taken into account when calculating Inheritance Tax.

Can I Use Equity Release to Give Money to My Family?

Yes, some homeowners use equity release to provide financial support to children or grandchildren. However, equity release will reduce the value of your estate and can have other financial implications, so you should receive personalised advice before making a decision.

Is It Better to Gift Money or Leave an Inheritance?

There’s no answer that will be right for everyone. Gifting during your lifetime can allow your family to benefit from financial support sooner, while retaining your money gives you greater financial security and flexibility. Your own future needs should always be carefully considered before making a substantial gift.