The younger generation are increasingly being forced to rely on parents and grandparents to help them get on the property ladder.

But the Bank of Mum and Dad (or Grandma and Grandad) doesn’t just help loved ones – giving money as an early inheritance can be incredibly tax-efficient. It reduces the size of an estate, reducing a future inheritance tax bill.

Callum Watts and his brother Ollie are two people who have benefited from being “gran-rolled”. The twins say they would never have been able to buy their two-bedroom flat in North London without an early inheritance from their grandparents.

Both 26, the siblings had saved hard for years and had built up about £60,000 between them in Lifetime ISAs. But it still wasn’t enough to get them a foot on the property ladder.

A five-figure gift from their grandparents changed everything. The brothers were able to buy their £450,000 flat and even had some money left over for renovations.

“For us, this was a way to get on the housing ladder and not spend money on rent. We used it as an opportunity to buy a place in London that was nicer than we could have afforded on our savings alone,” says Callum, who works in PR.

The sale completed in August and the twins are currently redecorating the flat, which had been rented to tenants and needed updating. Their first jobs are to paint the walls and replace the flooring.

Financial planners say there has been rising interest in lifetime gifting (giving an inheritance while you’re still alive) not just because the rising cost of living and high house prices means young people are more likely to need money sooner but it also makes sense from a tax point of view.

Lucy Butterfint, partner and head of wills, estates and tax planning at law firm Wilkin Chapman Rollits, said: “One of the reasons is that they get to see the impact of the gift, such as helping a child fund university education, pay off their mortgage, or relieving the financial burden of childcare costs.

“But it can also be part of sensible financial planning in reducing the size of their own estate for inheritance tax purposes.”

Everyone can pass on £325,000 after death before inheritance tax at 40 per cent is due, a threshold that has been frozen since 2009. The residence nil rate band, available since 2017, gives a further allowance of £175,000 per person if leaving a family home to children or grandchildren.

But with these thresholds frozen until at least 2031, more estates are falling into the net of inheritance tax. HMRC data show the proportion of deaths resulting in an IHT charge is now at 4.72 per cent, the highest since 2006. Meanwhile, the overall amount of IHT paid in the 2023/24 tax year was £7.03bn, up 5 per cent on the previous year.

This figure will get higher from next year, when private pensions come under the scope of inheritance tax (IHT) from 6 April 2027.

“Many people still view IHT as a tax on the very wealthy, but years of house price growth have brought more ordinary families into scope,” says Charlene Young, pensions and savings specialist at AJ Bell.

“These changes mean estate planning is likely to become an even bigger focus. Families should ensure they understand how their assets will be treated after death.”

Watts’s grandparents, who are in their late 80s, downsized last year as they wanted to move to a house that was easier to manage. But they decided to give some of the money they freed up in the process to their four grandchildren.

For Callum and Ollie, it was a gamechanger. They had previously been looking at properties with a top budget of about £420,000. The early inheritance meant they could look for bigger flats, with more space for the two of them.

Only homes worth up to £450,000 can be bought with a Lifetime Isa, but the gift from their grandparents meant Ollie and Callum were able to find one closer to this limit, to make the most of their accounts.

Callum thinks his grandparents have enjoyed seeing that their money is being appreciated and used sensibly. And while the brothers aren’t sure about their long-term living plans, for now they are grateful to have a first foot on the ladder.

“We haven’t discussed what will happen if one of us wants to move out, but neither of us are under the impression that this is a really long-term living situation. We expect probably to be there for five years and then we might look to move,” he says.

How much to give away?

If you’ve built up substantial savings or pensions, and own your home, the frozen thresholds and inclusion of pensions mean the chances of a portion of your wealth being subject to 40 per cent IHT is increasing.

Gareth Walliss, consultant at law firm Stevens & Bolton, says early giving makes sense for everyone if they can afford it. The money can help a child or grandchild at a stage of life where they probably need it most, and parents or grandparents are able to see the beneficial impact of their generosity.

If they make a large financial gift and live for at least seven years after, it should be exempt from inheritance tax. Gifts made within seven years of death may be taken into account when an estate’s IHT bill is calculated.

Some 61 per cent say they’d consider giving inheritance before death, according to a poll of parents who plan on leaving cash gifts to children by the investment platform Wealthify.

The top reasons are so their children don’t have to struggle financially, to see the benefits of them enjoying it while they’re still alive, and to avoid them losing money due to IHT.

However, knowing how much you can afford to give away is a key conundrum. It’s impossible to know how long you will live and, therefore, how long your money will need to last, and care costs are a big unknown in the calculations.

Cashflow modelling and forecasting, which can be done using your own spreadsheet or with the help of a financial adviser, can help work out how much might be needed need for future expenses before giving money away.

“Larger lifetime gifts generally fall outside your estate after seven years, so the earlier you start, the more time those rules have to work in your favour,” says Jennifer Crichton, associate director of wealth planning at Killik & Co.

“That said, gifting should never start just because of the future tax bill. Before making any significant gifts, you need to be confident you can meet your own needs first, including the cost of care later in life. Only once that’s covered should you decide how much to pass on, when and how,” she adds.