How gifting money to children could put your future care needs at risk

By HarperLees

According to the Halifax, house prices rose at their fastest rate for 14 years in the year leading up to September 2021. The building society’s House Price Index found prices were 7.4% higher than in September 2020, putting the average price in the UK at £267,587.

While this could be good news if you own a property, first-time buyers may not share your delight when you consider an article by Money reveals that the average age of a first-time buyer is now 34. With this in mind, you may be thinking of giving your children or grandchildren a lump sum to help them buy their first home.

If you are and would like to learn about buying a home as a first-time buyer, our recent guide could help.

While gifting money might help your children or grandchildren, care should be taken. Research by retirement firm Just Group revealed that 70% of parents who gifted more than £5,000 did not consider their financial future and, in particular, the potential cost of their long-term care.

Read on to discover why gifting to younger family members could help them, and why you need to be mindful of potential long-term care costs.

Giving with a warm hand has its benefits

Gifting to your children when they’re younger means they will probably receive it at a time they need it most. A prime example of this could be when they’re struggling to buy their first home.

Passing money to children or grandchildren when you die is likely to mean money will go to them later on in life, when they already have a property and are more financially secure.

Furthermore, if your estate is liable to Inheritance Tax (IHT), gifting earlier could provide you with more time to make potentially larger gifts. This could help reduce your IHT liability, and may allow you to negate the liability altogether if you bring your estate to within your nil-rate band (NRB).

This is the amount you are typically allowed to have in your estate before it becomes liable to IHT, which is normally charged at 40%. Depending on your circumstances, your NRB is typically between £325,000 and £1 million.

Your financial planner could confirm your NRB threshold, whether you have an IHT liability and what gifts you could make to potentially reduce your exposure to the tax. Your planner will also help you understand the long-term implications of gifting and how it might affect your financial security, especially when it comes to long-term care.

You may still need to fund your future care – even with the government’s care reforms

Long-term care has risen up the political agenda in recent years, as the high cost of care has resulted in many people having to sell their home to pay for it.

In September 2021, the government announced its social care reforms, which included raising National Insurance contributions (NICs) and Dividend Tax by 1.25 percentage points. At the time, the Guardian reported the raise is expected to generate £36 billion over the next three years, of which £5.4 billion will be used to boost social care in England.

As part of the reforms, Boris Johnson also announced an £86,000 limit on certain care costs. This means that as from October 2023 the government could pay for your care once it exceeds this amount.

While this sounds like good news, a recent Telegraph article makes for interesting reading. It explains the limit only covers the cost of “personal care”, which includes washing and eating. It does not include the cost of food, rent or energy bills, which means you may have to continue to pay for these.

The article explains that estimates by retirement firm Just Group suggest that if you pay £1,100 a week for residential care, around £350 will be classed as “personal care”. The remaining £750 would not, and so could fall outside the £86,000 limit.

As a result, just £18,000 of your £57,000 annual care fee would be classed as “personal care”. As such, it would take five years to reach your £86,000 maximum, during which time you could have spent around £200,000 of your own money to fund your non-personal care costs.

It should be added that the government has said it will look at a limit for non-personal care costs later in 2021. While this may help, it still may not negate the need to fund your own care.

If you want to gift money, always consider the long-term implications first

The Telegraph highlights an important point: even with the government reforms you could still be faced with substantial care costs. Ensuring the money you give to others does not jeopardise your ability to fund your future care is vital, and something your financial planner could help with.

They could help make sure you have the funds to provide more choice about the home you stay in. For example, you may want one that offers better surroundings or located closer to your family.

Get in touch

If you would like to discuss your care and ways to ensure you could cover the cost later in life, please contact your financial planner directly. Alternatively, email us on or call 01277 350560 and we’d be happy to help.

Please note

This article is for information only. 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 value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.