Want to help your children with a deposit, a wedding or university? Here is how the gift allowances, the seven-year rule and pension withdrawals work, and where the traps are.
Reviewed, edited and approved by Editor-in-chief Daniel Sköld · Updated 4 November 2026
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At some point the conversation starts. Your daughter has found a flat, the deposit is £20,000 short and the mortgage offer runs out in six weeks. Or your son is getting married, or the grandchildren need childcare. You want to help. You probably can. The question is how much it will cost you later, in tax, in retirement income and at family gatherings.
The Bank of Mum and Dad has no regulator, no compliance department and no cooling-off period. So before you pass the money over, it is worth knowing the rules.
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How much can I give my children without paying inheritance tax?
Gifts you make while you are alive aren’t taxed when you make them. Inheritance tax only comes into it if you die within seven years and your estate is big enough to owe it. Some gifts, though, fall outside your estate straight away, and you should use those first.
The main one is the annual exemption. You can give away £3,000 each tax year with no inheritance tax consequences at all. If you didn’t use last year’s allowance, you can carry it forward for one year only, so a couple who skipped last year could give £12,000 between them this tax year. On top of that you can give as many people as you like up to £250 each, as long as the same person hasn’t also had part of your £3,000.
Weddings get their own allowance. A parent can give £5,000 to a child who is getting married or entering a civil partnership. Grandparents can give £2,500, and anyone else £1,000. The gift has to be made before the ceremony, not afterwards.
The most generous rule gets the least attention: regular gifts out of normal income. If you pay for something regularly out of your income, and it doesn’t cut into your usual standard of living, it can be exempt with no upper limit. Paying £400 a month into a grandchild’s Junior ISA from your salary or pension income is the classic example. The catch is evidence. Your executors will have to show HMRC that the payments came from surplus income and not from savings, so keep a simple record of what you paid and what you earned each year.
What is the seven-year rule?
Anything beyond those exemptions, such as the £20,000 deposit, counts as a potentially exempt transfer. Live seven years after making it and it drops out of your estate completely. Die sooner and it is added back in when your estate is valued.
The first call on gifts like this is your nil-rate band, which is £325,000. If the gifts fit within it, there is no tax to pay on the gifts themselves, but they use up allowance your estate would otherwise have had. The residence nil-rate band of up to £175,000, which applies when your home goes to children or grandchildren, can’t be used against lifetime gifts. Both thresholds are frozen.
If your gifts in the seven years before death add up to more than £325,000, taper relief cuts the tax on the excess. Death within three years means the full 40%. Between three and four years it is 32%, then 24%, 16% and finally 8% between six and seven years. Bear in mind that taper relief only reduces the tax on a gift. It does nothing for a gift that sits inside the nil-rate band, which is where most family gifts end up.
One trap catches a lot of people. If you give something away but keep benefiting from it, it is a gift with reservation and HMRC treats it as still yours. Signing the house over to the children and carrying on living there rent-free is the usual example.
The money you give away at 58 is money you won’t have at 78, and a care home won’t take sentiment as payment.
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Should I take money from my pension to help my children?
This is where generosity costs the most. From 55 (rising to 57 from April 2028) you can usually take 25% of a defined contribution pot tax-free, up to a lifetime lump sum allowance of £268,275. Anything you take above the tax-free part is added to your income for that year and taxed at your marginal rate. Take a £40,000 chunk while you are still earning £60,000 and a big slice of it could be taxed at 40%. In Scotland, where the income tax bands are different, the bill could be higher still.
There is also a longer-term cost. Once you take taxable money flexibly from a pension, the money purchase annual allowance kicks in and cuts what you can pay into defined contribution pensions to £10,000 a year, with tax relief. If you are 56, still working and hoping to rebuild your pot, that matters a great deal. Taking only the tax-free cash doesn’t trigger it.
Then there is the simple arithmetic. Take £30,000 out of a pension at 57 and you lose not just the £30,000 but whatever it would have grown to over the ten or more years before you need it.
The other side of the argument is changing too. From 6 April 2027, most unused pension funds and death benefits are due to be counted as part of your estate for inheritance tax. For some wealthier families, that weakens the case for leaving the pension alone and spending other assets first. The answer depends on your circumstances, and it is exactly the kind of decision where paying for regulated advice can save you money.
Does giving money away affect my State Pension?
The State Pension itself isn’t means-tested, so giving money away won’t reduce it. Your National Insurance record decides what you get, not your bank balance.
Means-tested help is a different story. Pension Credit, Housing Benefit and Council Tax Reduction all look at your savings. If you give money away to qualify, or to qualify for more, the authorities can treat you as still having it. That is called deprivation of assets.
The same principle applies to care funding. If you later need residential care, the council will assess your capital, and a large gift made when care was already on the horizon can be added back. The capital limits and the rules are different in England, Scotland, Wales and Northern Ireland, so check the rules for where you live. No law says you can’t help your children while you are healthy. What matters is your motive and the timing.
How do I keep the peace with the other children?
Money is rarely the whole problem. Fairness usually is. If one child gets £25,000 towards a house, the other two will notice, eventually, even if it is at the reading of the will. Decide whether a gift is a gift or a loan, and write it down. If it is a loan, a simple signed agreement saying how and when it will be repaid avoids arguments later. If it is an advance on their inheritance, think about saying so in your will so the others can be balanced up.
Deposits need particular care. Mortgage lenders usually want a gifted deposit letter confirming the money doesn’t have to be repaid and gives you no stake in the property. If you want a share, that is a different arrangement and needs a solicitor. The same goes if your child is buying with a partner, because an undocumented gift can disappear in a break-up.
And talk to your partner first. Two people’s retirement is riding on this, not just yours.
In short
You can give £3,000 a year, £250 gifts, wedding gifts and regular gifts from surplus income free of inheritance tax straight away, and bigger gifts become tax-free once you have lived seven years after making them. Giving money away won’t touch your State Pension, but it can count against you for means-tested benefits and care funding, and taking cash from your pension can trigger income tax and the £10,000 money purchase annual allowance. Before drawing on your pension, book a free Pension Wise appointment or speak to an FCA-regulated financial adviser.
Andrew Ingram writes about money for men 45 and over – the years when retirement starts to feel real and the decisions get bigger. Pensions and retirement planning, investing, savings, mortgages and tax: what changed, what it means for your plans and what's worth doing about it. No hype, nothing to sell, and a clear steer on when it pays to get personal advice.
One of Midcent's writers. Spotted something? Write to andrew@midcent.uk.
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