Some people who manage their own money well spend beyond their means supporting an adult child whose need does not shrink.
It often starts with something reasonable, such as a deposit, a month's rent between jobs, or a car to get to work.
Help or dependency
The question to ask is: will this contribution solve a problem and leave them stronger, or will it create a dependency?
Money for a specific, one-off need is help. Money given repeatedly to remove the consequences of spending can create dependency.
Put a number on it before you decide anything
Many people in this situation do not know the annual figure. It leaves in small amounts — a standing order here, a shop paid for there, the phone contract nobody ever moved across, so it never shows as one number.
Take an illustrative couple, both 58, both planning to stop work at 66. They send their 31-year-old £450 a month, cover a £95 phone and insurance bill, and put roughly £55 a month of shopping on their own card. That is £600 a month, or £7,200 a year. Over the eight years to state pension age it is £57,600, before anything the money might otherwise have earned.
Now set that against their own gap. Suppose their pensions and State Pension are on track to cover £26,000 a year and they want £33,000 — a shortfall of £7,000 a year. Each year of support costs slightly more than a full year of their own retirement shortfall.
Do the same sum with your own figures. Pull twelve months of statements, highlight everything that goes to or for that child, and total it. If you want to see it against the rest of your money, put both versions — with the support and without — into the survival budget calculator.
Gift or loan
Without a record, one side may remember a gift and the other a loan. A signed, dated note saying which it is, how much, and what is expected back settles it. Write it at the time.
- If it is a deposit for a mortgage, the lender will ask for a gifted deposit letter confirming the money is a gift, is not repayable, and buys you no stake in the property. If it is a loan, it has to be declared as one, because it is a commitment against their affordability. Describing a loan as a gift on a mortgage application is misrepresentation.
- If it is a loan you would never chase, call it a gift. A loan nobody expects to be repaid can still damage the relationship.
Each tax year you can give away £3,000 in total under the annual exemption, and carry an unused annual exemption forward one year only. On top of that you can give £250 to as many different people as you like. Wedding or civil partnership gifts are exempt up to £5,000 to a child, £2,500 to a grandchild and £1,000 to anyone else. Regular payments have their own exemption with no cap at all, provided they come out of your normal income and you can still meet your usual living costs after making them. The £600 a month above may not meet that test.
Anything beyond those exemptions is a potentially exempt transfer: no Inheritance Tax if you live seven years. Die sooner and it counts against the £325,000 nil-rate band. Taper relief only reduces tax on gifts above the nil-rate band, and it runs 32% off at three to four years, 24% at four to five, 16% at five to six and 8% at six to seven. Keep a dated list of what you gave and when for your executors.
Gifts and care costs
If you later need care and the council assesses what you can pay, it can look at money you gave away. This is called deprivation of assets, and there is no fixed number of years it can look back over — the test is about intent and timing, not a deadline. The council has to show that you knew you were likely to need care and support, that avoiding the cost was a significant reason for giving the money away, and that you would have been expected to contribute. Giving money to your children while fit and well, for reasons that have nothing to do with care, is ordinarily not deprivation. Giving it away shortly after a diagnosis is a different conversation. If a council does decide against you, it must give its reasons and you can challenge it, ultimately through the Local Government and Social Care Ombudsman.
Other forms of help
Support can take a different form:
- Match what they save. A pound from you for every pound they put away, up to a set limit.
- Fund a bounded thing with an end date. A qualification, a driving course, a deposit on a flat that lowers their rent, career coaching.
- If they are saving towards a first home, money you give can be paid into their own Lifetime ISA, where the government adds 25% up to £1,000 a year. They must open it before they turn 40 and can pay in until 50, and the home has to cost £450,000 or less. If the money is taken out for anything other than a first home, age 60, or terminal illness, there is a 25% withdrawal charge, which can leave them with less than they put in.
- Pay for help rather than for outcomes. A session with a money coach, or a free appointment with MoneyHelper, StepChange or National Debtline, can help with why the money keeps running out.
Why it is so hard to stop
Often guilt. Parents who were working flat out when the children were small often carry a sense of having not been there, and money is the available currency for that. Some inherited the pattern from their own parents and assume it is normal. Once the giving has created an expectation, some parents feel responsible for it and give more.
How to stop
- Set a date. A date is clearer than a warning.
- Say it once, clearly, in advance. Write down what you are going to say and say that.
- Offer a different kind of support. Paying for career coaching, or a session with a money coach.
- Tell someone else the plan. It helps to have one other person who knows what you agreed.
A version to adapt: “We've added up what we've been sending and it's more than we can keep doing if we want to stop working at 66. From the first of April we're going to stop the standing order. That isn't a punishment and it isn't about anything you've done. What we can do instead is match anything you save, pound for pound, up to £100 a month, and we'll pay for the course if you want to do it.” It covers the number, the date, and what replaces the support.
And if the money is going to something bigger than bad luck, such as addiction, gambling or coercion, it needs specialist help. GamCare is free on 0808 8020 133.