Wealthy parents across the UK are increasingly funding adult children’s rent, bills and lifestyles — but under current HMRC inheritance tax (IHT) rules, regular financial support can have long-term tax consequences.

There has been no new law announced by HMRC or the Treasury, but financial planners warn that large or ongoing gifts could fall within the scope of inheritance tax if not structured correctly.

Under existing legislation, gifts made within seven years of death may be counted towards an estate’s taxable value. With the IHT nil-rate band frozen at £325,000 until April 2028, more families are being drawn into the system.

Below is a clear breakdown of what the rules mean in practice — and what families should consider before transferring large sums.

What Has Changed in 2026?

There is no new parental support tax.

However:

• The £325,000 inheritance tax threshold remains frozen.
• The residence nil-rate band remains capped at £175,000.
• Asset values, particularly property and investments, have risen.
• More estates are breaching IHT thresholds in real terms.

As a result, routine financial transfers to adult children are receiving greater scrutiny in estate planning.

How Inheritance Tax Works in the UK

Inheritance tax is charged at 40% on estates above the available thresholds.

Current IHT Allowances (2026)

• £325,000 – Standard nil-rate band
• £175,000 – Residence nil-rate band (if passing main home to direct descendants)
• Potential total: £500,000 per individual
• Married couples/civil partners can combine allowances up to £1 million

Any amount above these thresholds may be taxed at 40%.

How Gifts to Adult Children Are Treated

Under HMRC rules, financial gifts fall into three main categories:

1. Annual Exemption

• Up to £3,000 per tax year
• Unused allowance can carry forward one year
• Immediately outside the estate

2. Small Gifts Allowance

• Up to £250 per person per year
• Cannot be combined with the £3,000 exemption for the same person

3. Potentially Exempt Transfers (PETs)

• Larger gifts fall into this category
• No immediate tax
• Become tax-free if the donor survives seven years
• If death occurs within seven years, taper relief may apply

Regularly paying adult children’s rent, mortgage or lifestyle expenses can therefore create future IHT exposure if not structured correctly.

“Gifts Out of Income” – A Key Exemption

One important — and often misunderstood — rule is the “normal expenditure out of income” exemption.

Gifts may fall outside IHT if:

• They are made from regular surplus income
• They do not reduce the donor’s standard of living
• They are part of a consistent pattern

For example:

• Paying £1,000 per month towards a child’s rent
• Covering university fees annually
• Making standing order payments from excess pension income

However, clear records must be kept. HMRC can request:

• Bank statements
• Income evidence
• Written confirmation of gifting patterns

Without documentation, executors may struggle to prove eligibility.

Why Financial Advisers Are Raising Concerns

Recent behavioural finance research suggests that unlimited parental support can:

• Delay financial independence
• Reduce long-term savings behaviour
• Increase intergenerational wealth dependency

From a public policy perspective, the Treasury has also shown increasing interest in closing perceived loopholes around wealth transfer.

While there is no proposal currently targeting parental allowances directly, estate planning experts warn that informal gifting without tax planning can expose families to unintended liabilities.

Real-World Financial Impact

Consider this example:

• Estate value at death: £900,000
• Available allowances (single individual): £500,000
• Taxable estate: £400,000
• IHT at 40%: £160,000

If £200,000 had been gifted within seven years and not exempt, the tax bill could rise significantly.

For families funding adult children’s lifestyles over many years, cumulative transfers can materially affect estate value.

Practical Steps for Parents

If you are financially supporting adult children, consider:

• Using the £3,000 annual exemption
• Documenting gifts made from surplus income
• Reviewing estate value against the £325,000 threshold
• Taking regulated financial advice
• Updating your will to reflect gifting strategy

Check Official Guidance

Official rules are available at:

• GOV.UK – Inheritance Tax guidance
• HMRC Inheritance Tax Manual

There is no requirement to notify HMRC when making gifts, but records must be retained.

How This Compares to Previous Rules

• IHT thresholds have been frozen since 2009
• Residence nil-rate band introduced in 2017
• Threshold freeze extended until April 2028

The freezing of allowances during asset inflation is what has increased exposure — not a new parental support tax.

What Should Families Do Now?

• Review estate valuation annually.
• Keep detailed gifting records.
• Avoid ad hoc large transfers without planning.
• Consider structured, time-limited support.
• Seek advice if total estate approaches £325,000 or £500,000 thresholds.

There is no immediate action required by HMRC — but proactive planning is essential.

Frequently Asked Questions

Is there a new tax on parents supporting adult children?
No. There is no new tax announced. Existing inheritance tax rules apply.

How much can I give my child tax-free?
You can give £3,000 per year under the annual exemption. Larger gifts may fall under the seven-year rule.

What is the seven-year rule?
If you survive seven years after making a gift, it is usually outside your estate for IHT.

Do I need to report gifts to HMRC now?
No immediate reporting is required, but records must be kept for estate administration.

Will this affect my State Pension or Universal Credit?
No. Gifting money does not affect your State Pension. Means-tested benefits may be affected if you deliberately reduce assets.

Does paying rent for my child count as a gift?
Yes. It is treated as a financial transfer and may fall under inheritance tax rules.