Should you gift your family inheritance early?

Managing your estate and planning for your family's future is something that becomes paramount as you get older. One consideration is whether you should gift inheritance to your family early. In this article, we’ll walk you through the reasons why you might want to pass over some wealth to your family early, and how to do so.

Please note that the content of this article does not constitute expert advice on tax issues. Saga Mortgages, provided by Tembo, does not provide tax advice, and if possible you should always seek support from a tax specialist.

Why might you want to gift inheritance early?

1. Reduce your inheritance tax liability

Taking inflation into account, UK house prices have increased 227% since the 1970s. This means that many older homeowners may find that their estate will be subject to inheritance tax on their death, reducing the amount of wealth that will be passed to their loved ones. Passing on wealth early through tactics like unlocking money from your property to give to your children or grandchildren can reduce your inheritance tax liability. 

Find out more about how to reduce your inheritance tax liability in our guide.

2. Support your loved ones’ home purchase

Giving your loved ones their inheritance early can be a brilliant way to help them fund life milestones like having children, getting married or buying their first home. On average, it takes 8 years to save up for a house! Passing over wealth early, either through cash savings or unlocking money from your property, can allow your loved ones to reach these milestones while at the same time you can enjoy watching these dreams come true.

If you are interested in exploring ways you could support your child or grandchild’s homeownership dream, Saga Mortgages can help. You can get access to expert advice from an award-winning team who specialises in family-supported mortgages or other specialist solutions. Find out more. A mortgage is a loan secured against a home so the home may be repossessed if mortgage payments are not met.

3. Reduce the amount of interest your loved ones will pay

If you use your cash savings or property wealth to bolster your loved ones’ house deposit, you can help them access lower mortgage interest rates. With a larger down payment, they can get a more favourable rate, which will lower their monthly costs. This can be especially helpful during times of high interest rates, which can prevent a lot of prospective buyers from purchasing a home.

4. Help your loved ones be financially better off

Renting is often seen as “wasting money”, and although there are benefits to renting for some, there is an element of truth in this. Someone who owns a property would be £200,000 better off over a 25 year period than someone that rents the same property*. By gifting inheritance early to help your loved ones buy, you can not only help them get a place to call their own but also help them start building up their own property wealth.

*Calculated using accumulative rent and mortgage expenses, based on a £200,000 mortgage loan over 25 years, with 4% interest rate, in comparison to paying £1,336 per month on rent.

How to make the most of gifting early

Timing matters when it comes to gifting inheritance early. You have an annual gift allowance of £3,000 while you’re alive, which is exempt from inheritance tax, but you can also gift money on top of this as a wedding gift - up to £1,000 per person, or up to £2,500 for a grandchild and £5,000 for a child. 

If you want to give away larger sums of money, you usually have to live for more than seven years after making the gift to avoid inheritance tax. So the earlier you give inheritance to your loved ones, the more likely your estate will avoid inheritance tax. But remember to not deplete your own wealth fund too much; it's essential to strike a balance between supporting your family's dreams and securing your own financial future, such as funding retirement or potential long-term care. 

A financial adviser could help you assess your savings, investments and property wealth to work out how much you can afford to give away.

Conclusion

Gifting inheritance early is an effective strategy to not only reduce the inheritance tax liability on your estate, but also support your family's dreams in your lifetime. If you are interested in exploring how you can use early inheritance to help your loved ones buy a home, Saga Mortgages can help. Get personalised advice from an award-winning team of mortgage experts who specialise in alternative solutions to traditional mortgages, including family supported options.

Get started today to see how you could use your wealth to help your loved ones buy sooner.