Older generations accelerate financial gifts as IHT changes bite

The trend for “living inheritances” is showing no signs of abating, according to interactive investor’s Great British Retirement Survey 2026.

One in five (21%) over 65s has given money to loved ones in the last three years, while more than a quarter (28%) is thinking about it – an uptick on the findings of previous years on both counts.

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There are multiple reasons behind the so-called Great Wealth Transfer, which over the coming decades will see trillions of pounds pass from the Silent Generation and Baby Boomers to their offspring.

Rising house prices – especially in the South – combined with tax-free allowances that haven’t increased for almost two decades, are pushing more families into inheritance tax (IHT) territory.

And those numbers will only continue to grow. Not only are IHT allowances frozen until 2031, but from April next year, the value of any unspent pensions we leave behind when we die will also be included in our estate calculations.

Even though this policy change was announced two years ago - in the Autumn Budget 2024 - more than a third of survey respondents were unaware of the upcoming reforms to pensions and IHT.

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Awareness levels among interactive investor customers (who are likely to have more retirement savings) were higher. One in four now considers their retirement savings as a key part of their estate and an additional 30% has it on their radar, even if they are yet to think about the practicalities in detail.

What’s driving gifting?

It’s not just IHT fears that are spurring lifetime gifting plans. Although that continues to be a driver for 25% of over 65s, more than half (51%) said that they simply wanted to help younger generations of their family.

Rising living costs continue to take their toll, making it harder for adult children to achieve their financial milestones, whether that’s buying a first home or supporting their kids through university. Lots of parents naturally want to step in and help.

A significant 45% also wanted to have the pleasure of seeing loved ones get the benefit of their wealth - before they passed away.

How gifting cuts a tax bill

Giving away money before you die is one of the most popular ways to reduce an eventual IHT bill.

A £100,000 inheritance is worth just £60,000 once IHT is deducted at a rate of 40% - assuming the full sum is taxed. But if that money can be given away before you die, your loved ones can often get the full value of your generosity, without HMRC taking a slice.

Most large gifts from capital will be regarded as “potentially exempt transfers” or PETs: this means that you will need to survive seven years from the date the gift was made for it to fully leave your estate and be passed on free of IHT.

But you may be able to take advantage of certain gifting allowances. For example, everyone can give away £3,000 each year, and that money will be out of your estate straight away. You can carry forward £3,000 from the previous tax year if unused. There’s also the option to make tax-free gifts worth up to £5,000 when loved ones get married.

Another helpful – but often overlooked – allowance is “regular gifts from surplus income”. This lets you give away as much as you want tax free, so long as you’ll eventually be able to demonstrate that the gifts were regular and that you could afford to make them without it impacting your standard of living (making your income and expenditure records vital).

Understanding IHT rules

But before you get bogged down by gifting, it’s important to work out just how big an issue IHT is likely to be.

Everyone can leave an estate worth £325,000 before IHT is charged – that’s your nil rate band. But if your estate includes a family home that is being passed down to children or grandchildren, you can get an additional allowance worth a further £175,000. This is the residence nil rate band.

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Transfers between married couples are also tax free and they can inherit each other’s allowance when either dies. That means a married couple can effectively pass on an estate worth £1 million between them tax-free – so long as it includes a family home that is being left to a direct descendent.

To calculate your estate, you need to tot up the value of all your property, valuable possessions, savings, investments, and gifts made in the last seven years, less the value of any outstanding debts. From April 2027, pensions will need to be included in your sums too.

Anything in your estate above your tax-free limit will be taxed at 40% when you die (or 36% if you leave at least 10% of your chargeable estate to charity).

Plan, plan, plan

IHT gifting is deceptively simple. As straightforward as the act might seem, the rules and allowances can be complex.

An important aspect is working out just how much you can afford to give away and when.

To make the most of gifting rules, it’s best not to leave things too late. For larger gifts, you’ll want to have the confidence you’ll live for another seven years. And to get a sizeable amount of money out of your estate using annual gifting allowances, you’ll need to be gifting for a number of years. In perhaps the most enduring example of fiscal drag, the £3,000 annual allowance hasn’t increased since it was introduced in 1981.

But it’s important not to give away too much too soon and risk leaving yourself short towards the end of your life.

It’s not uncommon for people to underestimate just how long they will live. Then there’s the real elephant in the room – long-term care. The costs can be huge for those who end up needing it round the clock. The average cost of care in a residential home now stands at a staggering £1,298 a week or £67,496 for a year.

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Deciding how much you can afford to gift – if anything – can also be particularly difficult when the bulk of your wealth is tied up in your home.

Some homeowners try and get around that problem by gifting their property to their kids – but unless you either move out or start paying them a full market rent, you’ll still end up paying tax on the gift. This is because HMRC will regard it as a “gift with reservation of benefit” and so it will still be included in your estate for tax purposes.

For these reasons, if you want to explore ways to pay less inheritance tax – or simply use your wealth to help your family now - it’s worth discussing your options with a financial planner first.

It’s also a good idea to get a professionally drafted will – a useful IHT planning tool in itself – and ensure that all your pension nominations are up to date (stating who you would like to inherit your remaining funds when you die).

Finally…be careful of counting on inheritances

interactive investor’s Great British Retirement Survey 2026 also carries an important warning to younger people who are thinking they stand to benefit from this great wealth transfer.

While over half (54%) of respondents either expect to receive an inheritance or had already had one, the survey found they tend to come in later life. And, for some people, that might be too late to make a difference to the myriad financial challenges of young adulthood or mid-life.

Only 21% of millennials and 27% of Gen X had received an inheritance to date – compared to 50% of over-65s.

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At the same time, people tend to inherit less than they expect too. The average expected inheritance stands at £62,500 but the average amount actually inherited is much lower, at £45,000.

Only one in five gets the benefit of a six-figure inheritance.

That means it’s essential that younger generations save as much as they can towards their own retirement and not rely on an inheritance to see them through.