Why gifting your wealth early could have a greater impact on your beneficiaries (and your tax bill)

Like many people, you may be hoping to leave a financial legacy to your loved ones when you pass away.

In fact, Unbiased suggests up to £7 trillion will pass from one generation to the next in the UK over the next 30 years.

Often, people will plan to pass their wealth on to the next generation in their will. But by gifting early, you may be able to reduce the amount of Inheritance Tax (IHT) levied on your wealth, meaning more ends up in the hands of your loved ones.

Additionally, early gifting can help the next generation get more out of your wealth, supporting them to reach key financial milestones earlier in life.

Read on to learn about the tax-efficient options for gifting and discover why gifting your wealth early could provide a greater financial benefit for your beneficiaries.

Gifts could help reduce your taxable estate

When assets are inherited by anyone other than your spouse or civil partner, the value of your estate that exceeds the nil-rate bands is typically taxed at 40% (2025/26).

The nil-rate band is £325,000 in 2025/26 and there is an additional residence nil-rate band of £175,000 if you leave a property that you have ever lived in as a residence to a direct descendant. These thresholds are frozen until 2031.

Fortunately, gifting can often help reduce the size of your taxable estate.

As of 2025/26, you can typically gift the following amounts each year without incurring an IHT charge:

• Annual exemption: £3,000 a year, gifted to one person or spread across multiple recipients.
• Small gift allowance: £250 a year to an unlimited number of people, provided you haven’t made any larger gift to the same recipient.
• Wedding gift allowance: £5,000 to your child, £2,500 to your grandchild or great-grandchild, £1,000 to anyone else upon marriage or civil partnership.
• Regular gifts out of income: An unlimited amount, provided it’s gifted from your regular income after meeting your own usual living expenses.

Learn more about IHT-exempt gifting – How to gift money tax-efficiently: Seven Inheritance Tax rules explained

On top of this, assets gifted seven or more years before you pass away are excluded from your estate for IHT purposes. Should you pass away within seven years of making a gift, its value could be subject to IHT at either 40% or a tapered rate, depending on the size and timing of your gift.

So, gifting early could give you more time to use your annual allowances and make gifts under the seven-year rule – potentially leaving more wealth to your beneficiaries through a reduced IHT bill.

Discover how we can support with Inheritance Tax and estate planning.

Gifting early could help the next generation get ahead sooner

As life expectancies rise, many people are waiting longer to receive their inheritance than previous generations. In fact, Unbiased found that over half of the UK’s total wealth was held by the baby boomer generation in 2025.

What’s more, many younger generations are struggling to achieve key financial goals, such as repaying debts, buying a home, and saving for retirement.

Fortunately, gifting your wealth now could help your younger loved ones with these different aspects of their own financial lives.

Repaying debt

Data from The Money Charity shows that, as of the end of 2024, the average unsecured consumer debt (such as through credit cards and personal loans) was £8,219 per household.

Such debt can be costly and difficult to pay off, hindering your loved ones’ efforts to save and achieve their goals. The Money Charity found that, if you only made the minimum repayment each month, the average credit card debt of £2,528 per household would take 27 years and one month to repay, assuming a 24.65% interest rate.

Offering financial support early could help your loved ones repay any credit cards and loans before they accumulate interest and become a significant burden.

Getting on the property ladder

A 2025 survey by TSB found that 96% of first-time buyers received financial support for their deposit. With house prices continuing to rise, this trend doesn’t seem likely to decline any time soon.

By helping a loved one to buy their first home sooner, rather than later, you may be able to help them get on the property ladder before prices rise further. This could also help them avoid paying rent whilst they save up, allowing them to grow their wealth or enjoy more experiences whilst they’re young.

Saving for retirement

Amidst rising living costs, soaring house prices, and other economic factors, many are struggling to prioritise retirement savings.

Indeed, according to Financial Planning Today, 39% of UK savers aged 18 to 54 expect to need an inheritance to retire.

Gifting some of your wealth early can not only provide your loved one with peace of mind that they’ll have sufficient funds for retirement, but it could also help them boost their pot further. By investing their funds in a pension scheme, they may see their pot grow more significantly through compound returns.

Waiting to gift could see your wealth eroded by inflation

Depending on how your wealth is held, inflation could erode its real-terms value over time.

Prices continue to rise across the board, with the Office for National Statistics (ONS) reporting an increase of 3.8% in the 12 months to October 2025.

So, if your wealth is generating interest or investment returns at a rate below 3.8%, it could be losing spending power – although of course, this will depend on its current and future growth rate, as well as future inflation.

Even so, whether your loved one is hoping to purchase a new car, pay for a wedding, go on the holiday of a lifetime, or make a head start on retirement saving, gifting early could help them get more from your money by spending before prices rise further.

Get in touch

Email us at enquiries@pen-life.co.uk, or call 01904 661140.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, tax planning, or will writing.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.