Intergenerational wealth is the money, property and investments one generation passes to the next. Get it right and your kids start adult life a few rungs up the ladder. Get it wrong and inheritance tax, poor paperwork or family rows can eat a big chunk of it.
In this guide I’ll walk through how intergenerational wealth works in the UK, what the latest tax rules mean for you, and the practical steps you can take now, whatever the size of your pot.
What Is Intergenerational Wealth and Why Does It Matter?
Intergenerational wealth means assets that outlive you. That covers cash, your home, rental property, pensions, shares and any business you own. Income stops when you stop working. Wealth, on the other hand, can keep working for your family for decades.
This matters because the gap between people who inherit and people who don’t is wide. House prices are a good example. Many first time buyers now rely on help from parents to raise a deposit, so family money often decides who owns a home and who rents.
The good news is that you don’t need to be rich to start. Even modest, regular saving for your children compounds over 18 years into something meaningful.
How Intergenerational Wealth Is Taxed in the UK
Before you plan anything, you need to know the rules. Inheritance tax is the big one, and several changes land between 2026 and 2027.
Inheritance Tax Allowances for 2026/27
- Nil rate band: £325,000 per person.
- Residence nil rate band: up to £175,000 extra when you leave your home to children or grandchildren.
- Married couples and civil partners can pass unused allowances to each other, so a couple can leave up to £1 million tax free.
- Anything above the allowances is usually taxed at 40%, or 36% if you leave at least 10% of your estate to charity.
Both bands are frozen until April 2031. Meanwhile, house prices and investments keep rising, so more families get pulled into the tax every year. In addition, the residence allowance tapers away for estates worth over £2 million.
Pensions Count Towards Your Estate From April 2027
Until now, unused pension pots usually sat outside your estate. That changes on 6 April 2027, when most unused pension funds will be included for inheritance tax.
As a result, the old approach of spending other savings first and leaving your pension untouched is far less attractive. If your pension is a big part of your plan, review it before then.
Business and Farm Assets
From 6 April 2026, full relief on qualifying business and agricultural property is capped at £2.5 million per person. Above that, relief drops to 50%, which works out at an effective rate of 20%. Any unused allowance can pass to a spouse or civil partner. So if you run a family company, this cap is worth knowing about.
How to Pass Down Money Tax Efficiently While You’re Alive
Giving during your lifetime is often the simplest way to build intergenerational wealth. Several types of gift fall outside inheritance tax straight away.
Step 1: Use Your Annual Gift Exemptions
- £3,000 a year to anyone, and you can carry last year’s unused amount forward once.
- Up to £250 per person to as many people as you like, as long as they haven’t had another exempt gift from you that year.
- Wedding gifts of £5,000 to a child, £2,500 to a grandchild and £1,000 to anyone else.
Step 2: Gift Regularly From Surplus Income
This is the most underused rule. Regular gifts from your income are exempt if they don’t reduce your standard of living. For example, paying £300 a month from your salary into a child’s savings can qualify.
Keep a simple record of your income, spending and gifts each year. That way, your executors can prove the gifts came from surplus income.
Step 3: Understand the Seven Year Rule
Bigger gifts are known as potentially exempt transfers. If you survive seven years, they fall out of your estate completely. If you die within seven years and the gifts exceed your nil rate band, taper relief reduces the tax on gifts made three to seven years before death.
In practice, the sooner you give, the better. That’s why many parents help with house deposits in their fifties rather than leaving everything in a will.
Building Intergenerational Wealth for Your Children
Passing money on is one half of the story. The other half is growing it in the right wrappers.
Junior ISAs
You can put up to £9,000 a year into a Junior ISA. Growth is tax free, and the money belongs to your child at 18. A stocks and shares Junior ISA in a global index fund is a simple, low cost choice for an 18 year horizon.
Junior Pensions
You can pay up to £2,880 a year into a child’s pension, and the government tops it up to £3,600. It can’t be touched until their late fifties, so it’s a true long term gift. Compounding over 50 or more years makes even small amounts powerful.
Property
Property is a common family asset, yet it’s also one of the hardest to pass on smoothly. Some buy to let landlords use a limited company so shares can be gifted to children gradually. Get proper advice first, though, because moving existing property into a company can trigger stamp duty and capital gains tax.
Use a Will and Trusts to Protect Your Family’s Wealth
Without a valid will, intestacy rules decide who gets what. That can leave an unmarried partner with nothing, which is a real risk for the many couples who live together without marrying.
Trusts add another layer of control. For example, a trust can hold money for grandchildren until they reach an age you choose. However, most trusts come with their own tax rules and reporting, so set them up with a solicitor or adviser.
Finally, keep your pension nomination forms and life insurance up to date. A life policy written in trust usually pays out quickly and outside your estate.
Teaching the Next Generation About Money
Money without knowledge rarely lasts. There’s an old Lancashire saying: clogs to clogs in three generations. The first generation builds, the second maintains and the third spends.
So talk to your kids about money early. Show them how their Junior ISA has grown. Let teenagers make small investing decisions. When they reach adulthood, they’ll see inherited money as something to grow rather than a windfall.
Common Intergenerational Wealth Mistakes to Avoid
- Leaving no will, or an out of date one.
- Gifting large sums without keeping records.
- Ignoring the 2027 pension changes.
- Giving away your home but still living in it rent free, which usually doesn’t work for inheritance tax.
- Putting off family conversations until it’s too late.
Intergenerational Wealth FAQs
How much can I leave my children tax free in the UK?
Up to £500,000 per person if you leave your home to your children and your estate is under £2 million. A married couple can usually pass on up to £1 million between them.
Can I give my children money tax free?
Yes. You can give £3,000 a year under the annual exemption, plus regular gifts from surplus income. Larger gifts become fully exempt after seven years.
Are pensions subject to inheritance tax?
In most cases, not yet. From 6 April 2027, most unused pension funds will count towards your estate.
Final Thoughts on Intergenerational Wealth
Intergenerational wealth isn’t just for the super rich. It’s about using the allowances available, starting early and keeping your family in the loop. Above all, review your plan whenever the rules change, because they change often. If your estate is complex, a regulated financial adviser or solicitor is worth the fee.