The age-old problem with claiming an inheritance is that you typically have to wait until somebody you love dies first. The modern problem is that as life expectancy continues to grow, people have to wait longer than ever.

This is causing hardship now that wealth is increasingly concentrated in the hands of older people, often through their properties, with the over-65s sitting on an incredible £861 billion of housing wealth. That wealth has risen by £33 billion in the last six months alone as house prices continue to surge, according to figures from Key Retirement. At the same time, young people are finding it ever harder to get on the property ladder, with the number of first-time buyers falling 5% over the past year, according to the Council of Mortgage Lenders.

 

Something has to give. Or rather, somebody has to give.

Growing numbers of parents and grandparents are responding by handing over their inheritances while they are still alive. One in five parents are now passing on some of their wealth to their grown-up children, as are one in 10 grandparents, according to the HSBC Future of Retirement report. The money is going towards funding university fees, or helping "boomerang" kids finally escape the family nest and buy a place of their own. They call it the “living inheritance”.

There are tax advantages to letting at least some of your family's wealth cascade through the generations before you die. Currently, everybody can leave £325,000 worth of assets tax-free when they die, but anything above that is subject to inheritance tax (IHT), which is set at a punitive 40%. Thanks to spiralling house prices, more and more ordinary families are being caught in the IHT net.

One way to reduce your family’s liability is simply to give money away to your loved ones while you are alive. This is known as a “potentially exempt transfer”, which means it will only become free of tax if you survive another seven years. If you die sooner, however, the money will be taxed on a sliding scale.

You can also gift £5,000 to children who are getting married, or £2,500 to your grandchildren, with the money, instantly falling outside of your estate for IHT purposes.

You can also make tax-exempt gifts of up to £3,000 a year to whoever you like, or small gifts of up to £250 each. And you can gift last year's £3,000 allowance if you didn't use it.

Giving your children or grand children a living inheritance can help them get on in life sooner rather than much later. Better still, they will be enjoying your largesse while you are still alive to see it.

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