Increasing reliance on the Bank of Mum and Dad

The financial support provided by parents and grandparents has long played a role in family life, but in recent years, it has become a defining force in the broader economy. Dubbed the ‘Bank of Mum and Dad’, this intergenerational flow of wealth is increasingly crucial in helping younger people buy their first homes, fund their education, and establish financial security.

Arrange your free initial consultation

As house prices have surged far beyond wage growth, saving for a deposit has become an uphill battle for many. The average first-time buyer in the UK now needs around £60,000 for a deposit, a sum that would take years to accumulate without external support. Faced with this reality, nearly half of young homebuyers now rely on financial help from family to get onto the property ladder. This trend is even more pronounced in high-cost areas such as London and the South East, where deposits often exceed £100,000. Without parental contributions, home ownership is increasingly out of reach for those without inherited wealth.

A similar pattern is evident in higher education, where rising tuition fees and the high cost of living mean many students graduate with substantial debt. While some rely on student loans, others benefit from parents who cover their fees or living expenses outright. This financial head start can have long-term advantages, allowing some graduates to begin their careers unburdened by debt, while others face years of repayments that delay their ability to save, invest, or buy property.

What does this mean for society?

Beyond individual families, the ‘Bank of Mum and Dad’ has wider economic implications. As wealth is increasingly passed down through gifting, it alters patterns of financial security and social mobility. Those who receive help from their parents enjoy an advantage not only in property ownership but in long-term financial stability, while those without such support find it harder to build wealth. 
Research from the Institute for Fiscal Studies confirms that parental earnings are now a stronger predictor of young people’s future income than in previous generations, reinforcing economic divides.

The 7-year rule in inheritance tax

For wealthier families, gifting money to children can also serve a strategic purpose. Under current UK tax laws, financial gifts made more than seven years before the giver’s death typically fall outside of inheritance tax calculations. This means that parents and grandparents who transfer wealth earlier can help reduce the potential tax burden on their estate while providing meaningful support at a time when it is most needed. Given that inheritance tax is charged at 40% on estates above the £325,000 threshold known as the nil rate band (or £500,000 when passing a main residence to a direct descendant, known as the residence nil rate band), careful legacy planning can result in substantial savings.

However, parental generosity is not without its risks. As life expectancy increases and retirement lasts longer, many parents must balance their desire to support their children with their own financial security. Rising care costs and later-life expenses mean that some retirees could deplete their savings too quickly, potentially leaving them reliant on state support or requiring assistance from their own children in later years. A survey by Aegon suggests that over half of UK adults anticipate financially supporting their parents as they age, illustrating how wealth flows between generations in complex and often unpredictable ways.

The future of the ‘Bank of Mum and Dad’

Despite concerns about retirement preparedness, the influence of the ‘Bank of Mum and Dad’ is unlikely to diminish soon. Housebuilding targets remain unmet, real wages have not kept pace with property prices, and the need for financial support among younger generations shows no signs of easing. As a result, families will continue to navigate the challenges of intergenerational wealth transfers, seeking to strike a balance between supporting their children and securing their own financial futures.

For those considering passing on wealth, early planning is key. Seeking professional financial advice can help families structure gifts and inheritance in the most tax-efficient way, ensuring that wealth is preserved and maximised for future generations. As economic trends continue to shift, the role of the ‘Bank of Mum and Dad’ is, for the near future at least, here to stay.

If you’re looking for advice on the best way to support your loved ones, why not get in touch for a free initial consultation to see how we can help.

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.