Helping a child or grandchild onto the property ladder has become close to the norm rather than the exception. Family support – gifts, loans, or a share of an inheritance brought forward – now plays a role in roughly half of all first-time buyer purchases, and the average deposit a first-time buyer puts down with family help is well over £100,000, close to double the average deposit put down without it.

The instinct behind this is a good one. But the question we’re asked far less often than “how do I help” is “how much can I actually afford to give without putting my own future at risk” – and that’s the question that matters more.

Start with your own numbers, not the tax rules

It’s tempting to begin with what HMRC allows you to gift tax-efficiently. That’s the wrong starting point. The right starting point is a proper look at your own retirement income, your emergency reserves, and what you might need later in life – because a gift that’s entirely sensible from a tax perspective can still leave you financially exposed if it wasn’t affordable in the first place.

A useful discipline is to work out what you need for your own retirement first – factoring in your likely income from pensions, investments and the State Pension, a reasonable margin for the unexpected, and a cushion for care costs later in life – and only then look at what genuinely sits above that. Money that’s surplus to your own needs is very different from money you’re hoping you won’t need.

What a deposit actually costs to give

Deposit sizes have grown substantially alongside house prices. Recent lending data puts the average first-time buyer deposit at around £60,000 nationally, rising well above £100,000 in London and the South East, and family-assisted purchases tend to involve noticeably larger sums and higher-value properties than unassisted ones. If you’re contemplating a gift of this scale, it’s worth being honest about what that represents as a proportion of your total assets, not just whether you happen to have the cash sitting in an account today.

A gift of £50,000-£100,000 might be a modest fraction of one family’s total wealth, and a very significant chunk of another’s. The percentage matters more than the absolute figure.

The retirement income test

Before committing to a figure, it’s worth running your own numbers through a version of the same question a financial adviser would ask: if this money is gone, does your retirement plan still work? This means looking honestly at:

• Whether your pension and other income sources still support the retirement lifestyle you want, not a reduced one
• Whether you still have a genuine emergency reserve after the gift – money for a new boiler, a car, or an unexpected bill, kept separate from money earmarked for long-term growth
• Whether the timing works. A gift made at 55, with years of income ahead, carries different risk to one made at 70, when your capital increasingly needs to last for the rest of your life rather than be replenished by future earnings
• What happens under a less favourable scenario – weaker investment returns than expected, a period of higher inflation, or one of you needing care earlier than planned

This last point deserves particular attention. Long-term care costs are not covered by state provision beyond a means-tested threshold, and needing full-time care later in life is one of the more expensive and unpredictable costs a household can face. Gifting a large sum now, on the assumption that “we won’t need it,” is a judgement call worth stress-testing rather than an easy assumption to make.

Gift or loan: two genuinely different arrangements

Not every family contribution needs to be an outright gift, and it’s worth being clear-eyed about which you actually want, because they carry different implications.

An outright gift removes the money from your estate over time (more on the tax treatment below), removes any ongoing financial or emotional entanglement, and is generally the simplest option for the mortgage lender’s purposes – most lenders explicitly require deposit money to be a genuine gift, not a disguised loan, and their gifted deposit letter will need the donor to confirm the money is non-repayable and that they claim no interest in the property.

A family loan can make sense where you want to retain some flexibility – for example, if you might need the money back at some point, or if you want the arrangement to be visibly fair to other children in a way that’s easier to track as a loan than a gift. But loans need to be structured properly and documented from the outset: a written agreement setting out the amount, whether interest applies, and the repayment terms, ideally drawn up with a solicitor. An informal, undocumented “loan” that’s never actually repaid tends to cause more family friction than either a clean gift or a properly documented loan would have. It’s also worth knowing that a loan generally can’t later be recharacterised as the deposit itself for mortgage purposes – lenders want the deposit to be free and clear, so if you’re lending money specifically to fund the deposit, this needs handling carefully alongside the mortgage application, often via routes such as a Joint Borrower Sole Proprietor mortgage where a parent supports affordability without owning a share of the property.

Whichever you choose, put it in writing. Verbal understandings about “paying it back when you can” or “this is instead of what your sister will get” are exactly the kind of thing that causes real disputes years later, when memories of the original conversation have diverged.

Fairness between children

If you have more than one child, a gift to one now inevitably raises the question of what happens for the others – either now, or eventually through your estate. There’s no single right answer here; families handle this differently depending on circumstances (one child buying a home years before their sibling is ready is common and doesn’t necessarily need to be “evened up” immediately). But it’s worth deciding deliberately rather than by default, and being open with your children about your thinking, whether that’s treating the gift as an advance against their eventual inheritance, planning a comparable gift for other children at the relevant point in their lives, or simply being transparent that circumstances and needs differ and that’s reflected in what you’ve given each of them.

Whatever the reasoning, writing it down – even informally, in a letter or alongside your will – can prevent real confusion or resentment later.

The Inheritance Tax position

Gifts of cash to help with a deposit are treated in the same way as other lifetime gifts for Inheritance Tax purposes. The key points:

• Each individual has an annual exemption of £3,000, which can be gifted immediately without any IHT implications, and if unused in one tax year, one year’s allowance can be carried forward
• Larger gifts are treated as Potentially Exempt Transfers (PETs). If you survive seven years from the date of the gift, it falls outside your estate entirely for IHT purposes. If you die within seven years, the gift may be brought back into the calculation, with taper relief reducing the tax due (not the gift itself) the longer you survived after making it
• There’s also a separate exemption for gifts made regularly out of surplus income (rather than capital), which some parents and grandparents use for ongoing support, though this has specific conditions around regularity and not affecting your standard of living, and is worth discussing with an adviser if you’re considering it
• There is no tax to pay upfront. Any tax risk only arises if you die within seven years.

None of this should be the reason you decide whether or how much to give – that decision should come from what you can afford, per the sections above. But understanding the mechanics helps you plan the timing and structure sensibly once you’ve decided the gift itself is affordable.

A word on care costs and “deliberate deprivation of assets”

If gifting a large sum is part of a wider pattern of reducing your assets with the specific aim of qualifying for state-funded care later in life, local authorities can treat this as “deliberate deprivation of assets” – and, unlike the seven-year IHT rule, there’s no time limit on how far back a council can look. What matters to them is your intention at the time and whether care needs were reasonably foreseeable.

This shouldn’t deter genuine family gifts made for ordinary reasons – helping your child buy a home is a normal, common financial decision, not a mechanism for avoiding care costs, and councils generally distinguish clearly between the two. But it reinforces the earlier point: think through your own likely future needs, including care, before deciding what’s genuinely surplus to give away.

Documenting the arrangement properly

Whatever form the support takes, get the paperwork right:

• For a gifted deposit, your child’s mortgage lender will need a signed letter from you confirming the amount, that it’s a genuine gift with no expectation of repayment, and that you have no interest in the property – your child’s solicitor will usually provide the specific wording their lender requires
• Keep a clear paper trail of the transfer itself – a direct bank transfer, clearly referenced, is far preferable to cash
• For a loan, a proper written loan agreement, ideally drawn up by a solicitor, protects both parties and avoids ambiguity if circumstances change
• If the gift is meant to reflect wider estate planning – an advance on inheritance, for instance – consider recording that alongside your will, so your intentions are clear to your executors and other beneficiaries

Bringing it together

Helping a child or grandchild buy their first home can be one of the most meaningful things you do for them, and for many families it’s genuinely affordable without compromising anything else. But “can I gift this tax-efficiently” and “can I actually afford to give this away” are two different questions, and the second one deserves to come first.

This is where we think the conversation is best had as a whole picture rather than a single transaction: your retirement income, your emergency reserve, your likely future care needs, fairness across your family, and the tax and legal mechanics of the gift itself, considered together rather than one at a time. At Questa, that’s exactly the kind of conversation we help families have – making sure generosity today doesn’t come at the cost of security later.

This article is for general information and does not constitute personal financial, tax or legal advice. Inheritance Tax, care funding and mortgage lending rules are complex and depend on individual circumstances. Please speak to a qualified financial adviser and, where appropriate, a solicitor, before making a significant gift or loan.