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This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.
From helping with a house deposit to covering everyday living costs, many parents provide financial support well into their children's adulthood.
Such help starts off being well-intentioned and can be life-changing for the recipients. But if the gesture is poorly thought through, it can also create unintended financial and family complications.
Here’s how to help your children financially without everyone falling out.
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According to research from Standard Life, nearly two-thirds of parents (61%) with grown-up children provide them with some form of financial assistance.
More than a quarter of parents (26%) say they lend a financial hand with day-to-day living expenses such as rent, household bills, and food shopping. The study also found that one-in-eight (13%) contribute towards helping their children get on to, or move up, the property ladder. A similar proportion help fund large, one-off purchases.
Jill Mackay, savings expert at Scottish Friendly, says: “If parents or grandparents are providing financial support to family members, it's often helpful to be clear from the outset about the nature of that support.
“Is it a gift, a loan, or part of a longer-term inheritance plan? Being explicit about whether repayment is expected can be important, as failing to clarify can be a common cause of family disputes.”
Where financial support is being provided towards a house deposit, there is often less ambiguity as most mortgage lenders require parents (or grandparents) to sign a gifted deposit declaration confirming the money doesn’t need to be repaid.
If you’re lending money for another purpose, to help with debts or living costs, for example, it can help to have something in writing so there are no misunderstandings.
Sarah Coles, head of personal finance at AJ Bell, says: “You also need to consider what you will do if they fall short of repayments. If you are going to enforce the loan agreement, are you prepared for the emotional fall-out? If you’re not going to enforce it, can you cope with the financial consequences?”
Many over-50s face difficult decisions about how to divide financial support among children, grandchildren, or members of a blended family. Although there are often good reasons for treating family members differently, unequal assistance can create resentment if expectations are not discussed openly.
Coles says: “Some parents will be scrupulously equal about what they give to each child, so the one who is more financially independent doesn’t feel punished for their efforts. Others will feel some offspring need more support than others, and there’s only so much money to go around, so it ought to go where it’s most needed. If you explain your reasoning, it should keep tension or resentment to a minimum.”
Some families might choose to reflect earlier financial assistance when making inheritance arrangements. Again, this should be discussed as a family in advance to avoid inheritance disputes between siblings after your death.
Although you may be prepared to make some sacrifices for your adult children, it is important to protect your own retirement plans.
Mike Ambery, retirement savings director at Standard Life, says: “Life is rarely linear, and like many other milestones, it’s completely normal for pension savings to take a back seat when focusing on supporting children. However, at the same time, parents mustn’t lose sight of their own financial goals.
“This means setting clear expectations with your children about the level of support you can realistically provide, making sure you’re still contributing what you can afford into your pension, and ensuring you’re thinking about how much money you will realistically need for retirement. “Strike the right balance between supporting children today and staying engaged with your own financial future.”
When calculating how much financial support you can offer, it is worth considering a few ‘what if?’ scenarios. No one expects family relationships to break down or financial circumstances to deteriorate. Unfortunately, life doesn't always go according to plan.
What if a loan was never repaid? What if you discovered that the money had been used for a purpose other than that originally discussed? What if your own financial situation, or health, deteriorated unexpectedly?
Thinking through these possibilities in advance can help you make informed decisions and avoid misunderstandings later.
Money remains one of the most sensitive topics within families. Many people would rather avoid potentially awkward discussions than risk upsetting loved ones.
Parents providing financial support to adult children should make sure they strike a balance between offering enough support to ease the transition to independence, but without removing the incentive to become financially self-sufficient.
Any assistance should come with an agreed end-date so that both sides understand when support will stop.
Jill Mackay says: “Money is an emotive subject. When combined with family dynamics conversations can quickly move beyond pounds and pence and into more sensitive territory. However, avoiding those conversations is often where costly mistakes arise.”
The inheritance tax (IHT) annual gifting allowance lets you give away up to £3,000 each tax year without it being added to the value of your estate for IHT purposes. Other gifting allowances include gifts of up to £250 per person each tax year, wedding or civil partnership gifts of up to £5,000, and regular gifts made from surplus income.
Mackay says: "The current inheritance tax allowance is £325,000. But if an estate is worth more than this, financial gifts made during someone's lifetime may need taking into account, depending on individual circumstances, particularly if they were made within seven years of death.
“That's why keeping clear records of gifts can be helpful. Without proper records, there is a risk that gifts could be incorrectly assessed, potentially increasing the inheritance tax bill or creating unnecessary complications for executors and family members.”
Many over-50s feel pressured into helping younger generations, particularly those facing challenges such as high housing costs, expensive childcare or rising living expenses.
But before you hand over any cash, take a realistic look at your finances and consider seeking professional financial advice if you're unsure how much you can safely afford to provide.
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