A retirement income big enough for an annual family holiday. A deposit for a grandchild’s first flat. These aren’t separate from a financial plan – for a lot of people, they’re the actual point of it. The worry that usually stops people acting on this is a fair one: give away too much, or at the wrong time, and it’s your own retirement that suffers. A cashflow model earns its keep here, since it can show fairly precisely what a gift today does to your own plan, rather than leaving you to guess.
Supporting family now, without an unnecessary tax bill later
Gifting during your lifetime can do two things at once: help someone when they actually need it, and reduce your estate’s eventual Inheritance Tax bill, since certain gifts fall immediately outside your estate. The nil-rate band is £325,000, and most people can add the £175,000 residence nil-rate band on top if they leave their main home to direct descendants – both frozen until April 2031, which is its own story we’ve covered in detail elsewhere.
The main gifting allowances worth knowing: up to £3,000 a year as your annual exemption (unchanged since 1981, incidentally); up to £250 to as many different people as you like, though giving any one person a penny over £250 disqualifies the whole gift rather than just the excess; and wedding gifts, which depend on your relationship to the couple – £5,000 from a parent, £2,500 from a grandparent or great-grandparent, £1,000 from anyone else. One thing worth flagging: the annual exemption and the small gifts exemption can’t both be used on the same person in the same year, though there’s nothing stopping you using the annual exemption for one person and the small gifts exemption for several others.
The exemption most people don’t use properly
Regular payments made out of surplus income – covering a child’s rent, contributing to a grandchild’s savings account, that sort of ongoing support – can also fall outside your estate entirely under the “normal expenditure out of income” exemption, and there’s no cap on the amount involved. It has to meet three conditions, though: it needs to form a settled, regular pattern (HMRC generally wants to see three or four years of it), it has to come from income rather than capital, and it can’t reduce your own standard of living. Where people fall down isn’t usually the gifting itself, it’s the paperwork – executors need to evidence this exemption using HMRC’s IHT403 form, working from your income and expenditure over time, so keeping a simple running record while you’re gifting saves a real headache for whoever administers your estate later.
Saving for their future rather than their present
Some family support is less about today and more about setting something aside for later – university costs, a first car, simply a head start at 18. A Junior ISA is the obvious vehicle here, locked away until the child turns 18 and then entirely theirs. If the goal is further off still, contributing directly into a child’s own pension is worth considering too, particularly given how much time compounding then has to work before they’ll ever draw on it.
What you actually leave behind
Lifetime gifting and a will aren’t alternatives to each other – most people end up doing some of both. If leaving a specific sum, or a specific asset, to someone matters to you, that’s worth setting out clearly rather than leaving to a general residuary split, and it’s worth revisiting as your own circumstances, and theirs, change over time.
Let’s build your family into your plan
We work with clients across Poole, Bournemouth and the wider Dorset area to figure out how much they can comfortably give, when, and in the most tax-efficient way, without putting their own plans at risk in the process. If you’d like to talk through how to involve your own family in your financial plan, get in touch and we’re happy to have a no-obligation conversation.
This article is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only. All information is correct at the time of writing (September 2026) and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate cashflow modelling, Inheritance Tax planning, or estate planning.