In the current climate, young adults are increasingly reliant on their families to get on the property ladder.
According to Mortgage Solutions, 52% of people who became homeowners in 2024 received financial assistance, with an average contribution of £55,572.
As a parent, you will naturally want to support your children. One of the benefits of robust financial planning is that you may be in a position to do so. Often, gifting a house deposit is the go-to option for parents, but this may not always be the most suitable way to help your loved ones.
Some parents would prefer not to gift a large lump sum as they want their children to learn the value of regular saving. Furthermore, you might not be able to gift a significant portion of your wealth without disrupting your own retirement plans.
Additionally, your children may have already bought a home, but still need assistance with covering general expenses or building their savings.
Here are three alternative ways you could help your children financially instead of gifting a house deposit.
1. Pay into a Lifetime ISA
If your children are saving for their first home and you want to support them without simply gifting them the full deposit, consider a Lifetime ISA (LISA).
Your child can open this specific type of ISA provided they are between 18 and 39 when they make the first subscription. They can then contribute until they’re 50.
Each year, they can pay in up to £4,000, which counts towards their overall annual £20,000 ISA allowance, and the government will add a 25% bonus.
As long as they withdraw the funds to purchase their first home, or once they turn 60, they retain this bonus. If they take the funds for any other reason, they will face a penalty of 25% of the overall value of the LISA.
Your children may use a LISA to save for their first home or for retirement, and you could support them with this. By gifting smaller sums to help them reach their £4,000 allowance, you help them build their savings.
As they are also contributing themselves, rather than simply being gifted the full deposit, they develop positive financial habits.
2. Help with general living expenses
Gifting wealth for a house deposit is a common way parents help their adult children, but this isn’t the only reason your loved ones might need support.
As the cost of living rises, your children might have difficulty covering certain bills. Additionally, as interest rates have risen considerably in recent years, they might face higher mortgage costs.
Unfortunately, increased expenses could mean that your children sacrifice contributions to their savings and investments for the future.
This is why, according to Credit Connect, 15% of high net worth individuals who are helping adult children financially are paying towards day-to-day bills.
By assisting with general expenses, you can help your children stay on top of their financial responsibilities. More importantly, they may be better able to save for the future if you support them with the rising cost of living. This means their own financial plan stays on track.
3. Contribute to their pension
Increased living costs mean that the amount your children are likely to spend in retirement is rising. Consequently, they may need to save a considerable amount in their pensions to achieve a comfortable standard of living.
According to PensionsAge, 22% of 18- to 34-year-olds expect to spend at least £100,000 a year in retirement. In comparison, only 3% of 50- to 69-year-olds think they’ll need this amount.
As such, it’s important that your adult children contribute enough to their pension and other retirement savings.
You could help them with this by contributing to their pension.
Any payments you make into their pension will benefit from the same tax relief they receive on their own contributions. This means they’ll automatically receive 20% tax relief, and they can claim an additional 20% or 25% through self-assessment if they’re a higher- or additional-rate taxpayer.
Bear in mind that your child can only benefit from tax relief on contributions up their Annual Allowance of £60,000 – or 100% of their earnings for that tax year, whichever is lower. This includes their own contributions as well as employer contributions and anything you add on top.
If the total amount paid into their pension, including tax relief, exceeds the Annual Allowance, they will incur an additional tax charge.
We can help you navigate these rules so you can contribute to your child’s pension tax-efficiently and avoid any unexpected charges.
Financially supporting your children could have Inheritance Tax planning benefits for you
However you decide to support your children, gifting wealth now could reduce the amount of Inheritance Tax (IHT) your family eventually pays when you pass away.
For example, the first £3,000 you gift each year is automatically IHT-free. Any further gifts may also fall outside your estate for tax purposes if you survive for seven years after giving them.
Additionally, there is a specific “gifts from surplus income” rule that may apply if you’re making regular payments to help with living costs or to pay into your child’s pension.
With our support, you can make the most of the IHT benefits of gifting and prevent costly mistakes with estate planning.
Get in touch
We can discuss various ways to financially support your loved ones.
Please give us a call on 01276 855717 or email info@braywealth.com today.
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.
HM Revenue and Customs’ practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both. The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
Approved by the Openwork Partnership on 02/12/2025
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