Why one in ten retirees are cutting back on gifting

A growing number of retirees plan to cut back on gifting to children and grandchildren due to rising financial pressures.

The average retiree currently spends about £2,500 annually supporting younger family members – £1,323 in gifts and £1,175 towards education – according to the wealth manager Quilter.

Many give away a lot more though. Younger, higher income retirees, for example, gift an average of £4,836 to relatives and a further £5,280 towards education each year.

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A survey of more than 5,000 retirees by Quilter found that 13% plan to reduce gifting, increasing to 16% among younger retirees with higher-than-average incomes, and 15% among their lower-income peers. This suggests that even those with relatively strong financial positions are cutting back.

“Retirees provide a vital avenue of financial support for younger generations, helping with everything from education to deposits for first homes,” says Shaun Moore, tax and financial planning expert at Quilter.

“If the Bank of Mum and Dad, or even the Bank of Gran and Grandad, begins to close its doors, the ripple effects could be felt across the housing market, education system, and the wider economy.”

Separate research by BRI Wealth Management reveals that people do want to be able to transfer wealth to loved ones when they retire.

In 2023, only 31% of pre-retirees ranked passing on wealth as a top three concern, but by 2025 this has risen to 52%, making it the number one priority.

The focus on gifting – even if some of today’s retirees are having to cut back due to money worries – comes amid speculation we could see inheritance tax reforms in the Autumn Budget, which will take place on 26 November.

Over the past month, there have been rumours that chancellor Rachel Reeves could introduce a cap on lifetime gifting to limit how much wealth can be given away free of inheritance tax (IHT) before someone dies.

Another potential target is the taper rate of inheritance tax that applies to gifts given away during your lifetime, known as the seven-year rule. It’s possible the time period could be increased beyond seven years.

Could inheritance tax gifting rules change in the Budget?

There are plenty of rumours about tax hikes in the upcoming Budget.

Moore notes: “The rumour mill is already in overdrive as we near the chancellor’s upcoming Budget and has so far seen a potential lifetime cap on gifting, an extension to the period donors must live after making a gift before it falls outside of their estate for IHT purposes, and the potential for a further freeze on the nil-rate band all debated.

“While none have been confirmed, the government will clearly be trying to fill a hole in its finances.”

The government made changes to IHT in last year’s Autumn Budget, with a crackdown on pensions and AIM shares, as well as farms. So, it’s an area that could be revisited by a revenue-raising government, and it wouldn’t break its red lines of promising not to put up income tax, VAT and National Insurance.

Jon Hickman, a tax partner at the accountants BDO, reckons there’s a “medium” likelihood of IHT changes in the November Budget.

“Changes to the gift reliefs and rules would not raise vast amounts in themselves, but in combination with the changes to IHT business and agricultural reliefs due to take effect from April 2026 and pension funds from April 2027, the cumulative impact could produce a significant increase in future IHT revenues over time,” he comments.

“Such changes would not affect the majority of taxpayers, nor breach any manifesto commitments – but IHT policy has become a political football in recent years due to constant press coverage, so a clampdown could be risky for the government.”

It would be a brave government to cut the annual gifting allowance, especially as it has been frozen at that level for more than 40 years (and therefore should arguably be increased, not reduced).

If the £3,000 limit had kept pace with inflation, it would now sit at £12,000, according to Quilter.

The wealth manager is calling on the government to modernise the annual gifting allowance, which can help people reduce their inheritance tax liability.

“The gifting allowance is a relic of a different economic era. Even a modest increase to £9,000, for example, would better reflect modern financial realities, ensure it aligns with existing savings vehicles such as the junior ISA, and could allow families to support one another more freely and purposefully,” explains Moore.