The bank of mum and dad pays out into adulthood, research finds

Increase in financial support between generations prompts calls for inheritance tax reform

THE Bank of Mum and Dad is still supporting children well into adulthood, as a new survey showed that one in five households has accelerated handouts this year.

Research from Saga’s equity release service found that 21 per cent of over50s with children over the age of 18 have increased the level of financial support they give their offspring since March.

While for many this was a response to increased financial uncertainty during the pandemic, Saga said it was a continuation of a “clear pattern” predating the virus, as older parents look to give their inheritance early, perhaps to help children on to the housing ladder.

Research published by HMRC last year suggested that adult children were the largest beneficiary of gifts given by taxpayers, with weddings and birthdays the most common time for bequests.

Alex Edmans, the head of equity release at Saga, said: “We now live longer and settle down older. Many over 50 have accumulated wealth, benefited from rising house prices or are now enjoying retirement. Gifting to children or grandchildren is a luxury that many are choosing to accelerate.

“Not only is this a way for families to enjoy the benefits of their inheritance together, it’s also a reminder of the differences between generations.

“Rising house prices have made home ownership a lofty aspiration for many young adults, particularly when considering they typically now marry later so are reliant on one income.”

However, Sarah Coles, of investment firm Hargreaves Lansdown, said helping offspring on to the housing ladder was far from the only reason parents might choose to accelerate their inheritance. Some could be trying to bypass a punitive inheritance tax charge, while some children could even be relying on an inheritance to fund their retirement.

Mrs Coles said that research by the firm showed that of the 17 per cent of people who expect a significant inheritance, 62 per cent said they needed it to fund their retirement, meaning they could not afford to wait until their 70s.

“Older people don’t want to leave a big chunk of their money to the taxman,” she said. “They also see it as a chance to ease the pressure on children and grandchildren – from paying for their education to getting on the hous

‘Gifting to children or grandchildren is a luxury that many are choosing to accelerate’

ing ladder and affording retirement. Giving earlier in life gives them an opportunity to see the difference their money can make to their family.”

The Intergenerational Foundation, a think tank, said inheritance tax rules should be reformed to make this sort of gifting easier. Under current regulations, individuals can only gift up to £3,000 a year tax-free with sums above that amount being taxed as part of the estate if the person dies within seven years. Liz Emerson, from the think tank, said: “Too many older people, with substantial assets and incomes, put off helping their younger relatives because they fear they will die before the sevenyear, tax-free gift rule is met. The Government could easily reduce the time limit, while also increasing the annual gift exemption from a mere £3,000.”

A Treasury spokesman said inheritance tax applies to less than four per cent of estates, so most families can make gifts without needing to pay it.