Growing numbers of retirees are cutting back on the financial support they give to family members as they face a squeeze on their own budgets.
Retirees currently spend around £2,500 on average every year on younger family members, with £1,175 spent on education and £1,323 on gifts, according to wealth management firm Quilter.
Younger pensioners with higher incomes give away even more – an average of £4,836 handed to relatives and a further £5,280 towards education.
But 13 per cent of retirees now plan to reduce their gifting, according to Quilter.
And it warns that if Chancellor Rachel Reeves chooses to announce a cap on the amount people can gift in their lifetimes in the Autumn Budget, it could even further deter retirees from making gifts.
A lifetime gifting cap would mark a significant departure from the way inheritance tax has historically been imposed, and advisers say it would mark a huge change to the way families pass on wealth.
Don’t bank on it: Growing numbers of retirees are cutting back on the financial support they give to family members as they face a squeeze on their own budgets
The current rules allow individuals to gift up to £3,000 every year, and unlimited small gifts of up to £250, free from tax.
Any gifts made on top of your allowances could incur inheritance tax if you die less than seven years after making them. This is levied on a sliding scale, from eight per cent if gifts were made six to seven years before death, to the full 40 per cent if made within a year.
Individuals can also pass on estates worth up to £325,000 without their beneficiaries receiving an inheritance tax bill. This sum rises to £650,000 for a couple or up to £1 million for a couple passing on their family home.
If retirees cut back further on gifting money and assets, it is likely to have an impact on the wider economy, Quilter warns.
Older family members are a key source of funding for first-time buyers. Figures from estate agent Savills show that the Bank of Mum and Dad forked out £38.5 billion over the past four years to help their children on to the property ladder.
In 2024, 173,500 first-time buyers received help from parents, with an average gift of £55,572.
Parents and grandparents are also helping with rental payments at university, giving an average £7,200 every year, according to wealth firm Rathbones.
Any further changes to inheritance tax could create a knock-on effect if increased numbers of retirees slow down or stop gifting entirely.
‘Retirees provide a vital avenue of financial support for younger generations, helping with everything from education to deposits for first homes,’ says Shaun Moore, tax and financial planning expert at Quilter.
‘If the Bank of Mum and Dad, or even the Bank of Gran and Grandad, begins to close its doors, the ripple effects could be felt across the housing market, education and the wider economy.’
Quilter is calling for a modest increase to the gifting allowance to £9,000, or the Government risks ‘crucial’ intergenerational wealth diminishing.
The gifting allowance has not changed since its introduction in 1986.
If it had risen in line with inflation, it would be quadruple its current level at just over £12,000, putting more families at risk of incurring inheritance tax.
Breaching the annual gifting allowance does not automatically trigger a tax liability, but it can add more uncertainty and discourage financial support.
Moore adds: ‘With pensions soon falling within the inheritance tax net, generating a considerable uplift in revenue, increasing the allowance would be a modest concession for a meaningful economic gain.
‘If the Government’s goal is to foster a high-growth, investment-led economy, then reducing friction around intergenerational wealth transfer is not just aligned with that vision, it is essential to it.’
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