Increasing reliance on the Bank of Mum and Dad & the Bank of Gran and Grandad!

The financial support provided by parents and grandparents has long played a role in family life, but in recent years, it has become almost essential in defining their financial future of younger family members of and the wider economy. Dubbed the ‘Bank of Mum and Dad’, this intergenerational flow of wealth is increasingly crucial in helping younger people buy their first homes, fund their education, and establish financial security.

As house prices have surged far beyond wage growth, saving for a deposit has become an uphill battle. The average first-time buyer in the UK now often faces a deposit hurdle of over £65,000, a sum that would take years to accumulate without external support. In high-cost areas such as London and the South East, these figures frequently exceed £100,000. Faced with this reality, over 50% of young homebuyers now rely on financial help from family to get onto the property ladder. Without parental contributions, home ownership is increasingly out of reach for those without inherited wealth, effectively making family support a structural necessity rather than a bonus.

A similar pattern is evident in higher education. Recent media coverage and parliamentary discussions have highlighted the growing "multigenerational burden" of student debt. The Government may be capping student loans at 6% from September, which is good news for those currently paying much more, however many graduates will continue to see their balances grow faster than they can repay them. While some rely on these loans, we are seeing an increasing number of parents and grandparents stepping in to cover fees or living expenses outright. This financial head start provides a significant long-term advantage, allowing graduates to begin their careers without the burden of high-interest debt that would otherwise delay their ability to save, invest, or move into their own homes. 

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What does this mean for society?

Beyond individual families, the ‘Bank of Mum and Dad’ has wider economic implications. As wealth is increasingly passed down through gifting, it alters patterns of financial security and social mobility. Those who receive help enjoy an advantage not only in property ownership but in long-term financial stability.

Research from the Institute for Fiscal Studies confirms that parental earnings are now a stronger predictor of young people’s future income than in previous generations, reinforcing economic divides between those with access to family capital and those without.

The shifting landscape of Inheritance Tax

For wealthier families, gifting money to children has always served a strategic purpose. Under current UK tax laws, financial gifts made more than seven years before the giver’s death typically fall outside of inheritance tax (IHT) calculations. In addition, parents can pass down most defined contribution pensions free of inheritance tax, in addition to their nil rate band allowance.

However, the strategy behind this is evolving. From April 2027, unused pension funds are set to be included within the value of a person’s estate for IHT purposes. Historically, pensions were a protected way to pass on wealth, but this change looks to already be accelerating a “giving while living" approach. Many grandparents are now choosing or considering choosing to pass down wealth earlier in their lifetime, utilising surplus pension income or lump sums now, to support their grandchildren’s immediate needs while simultaneously reducing the potential 40% tax on their future estate.

Given that IHT is charged at 40% on estates above the £325,000 nil rate band (or £500,000 with the residence nil rate band when passing down your main home to direct descendants), proactive legacy planning is becoming more essential as we approach the 2027 deadline.

The risk of overextending

Despite the clear benefits to the younger generation, parental generosity is not without its risks. As life expectancy increases and the cost of living remains a factor, many parents or grandparents must carefully balance their desire to support their children with their own financial security.

Rising care costs and later-life expenses mean that some retirees could deplete their savings too quickly. A recent survey suggests that over half of UK adults expect to financially support their own parents as they age, illustrating how wealth flows in complex and sometimes unpredictable ways. It is vital that "The Bank of Mum and Dad" does not compromise their own retirement to fund the next generation's present.

The risk of waiting too long  -the cognitive ‘timebomb’

While many families focus on the "when" of passing down wealth, we must also consider the risk of waiting too long. One increasingly discussed issue is the potential for assets to become effectively "locked" due to cognitive decline. As we live longer, conditions such as dementia can make it difficult for parents or grandparents to make the very gifts they intended to provide.

We can look to countries like Japan to see the impact of this, where vast sums of personal wealth have become inaccessible because the owners no longer have the capacity to manage them. While the UK is at an earlier stage of this challenge, the trend is clear. Without proactive planning, including the use of Lasting Powers of Attorney, families may find themselves unable to access or manage assets just when they are needed most.  

The future of the ‘Bank of Mum and Dad’

The influence of family lending is unlikely to diminish anytime soon. With housebuilding targets continuing to be a challenge and real wages struggling to keep pace with property prices, the need for support shows no signs of easing. Families will continue to navigate the challenges of intergenerational transfers, seeking to strike a balance between supporting their children and securing their own futures.

If you’re considering passing on wealth, early planning is key, especially with the 2027 pension changes coming in next year. Seeking professional financial advice can help structure gifts in the most tax-efficient way, ensuring wealth is preserved and ideally kept in the family. 

If you’re looking for advice on the best way to support your loved ones while protecting your own future, why not get in touch for a free initial consultation to see how we can help. 

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The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. The information is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.