I blame the Bible, specifically the parable of the prodigal son — the waster who asks for his inheritance up front and promptly squanders it.
A vicar will probably tell you that the way the father welcomes the boy when he later comes crawling back, grovelling and penniless, shows exemplary forgiveness. But for too many wealthy parents I think the lesson is: be very careful about giving your kids too much money too soon if you don’t want them to waste it!
Rachel Reeves, the chancellor, is forcing many of those parents to rethink those risks. By freezing inheritance tax (IHT) allowances and removing IHT protection from pensions, she is creating a powerful incentive for families to pass on wealth much sooner than they might have. The alternative is to give 40 per cent, perhaps amounting to hundreds of thousands of pounds, to HM Revenue & Customs.
Values mismatch
This is encouraging many of us in the financial planning profession to discuss the tax practicalities of early gifting, but maybe we should also be thinking about the psychology of giving.
Older generations who are giving money have different values, shaped by growing up in postwar austerity or the economic tumult of the 1970s. They see their children and grandchildren with bulging wardrobes of cheap clothes and surrounded by technology. It can lead to unhelpful “kids today don’t know how lucky they are” attitudes.
Those kids may be lucky, but they face relatively extortionate house prices. They won’t have the benefit of final-salary pension schemes when they retire. And some will face the extra tax drag of up to 15 per cent on much of their salary to pay for university loans.
As a result of this mismatch, too often financial gifts come laden with expectation and restrictions. They can trigger guilt and anxiety rather than appreciation and pleasure.
Academic research
Academic research may offer useful insights for addressing this conundrum. A 2009 study in the Journal of Experimental Social Psychology found that a gift is not necessarily appreciated more for its cost. So don’t be sacrificial: therein lies disappointment. If you want emotional impact, a small sentimental gift may be more effective.
More recent research has shown that people appreciate experiential gifts more than material ones. For one of my friends that means booking a villa in the sun and inviting his adult daughters and their partners for a free holiday each year. For another it has meant buying all her children and their partners lifetime joint membership of the National Trust – which is currently £2,890.
If spending big, spend on what they need. They’ll value it more. So don’t buy them a painting you love when they need a washing machine.
A reassuring study in the Journal of Basic and Applied Social Psychology in 2013 suggests recipients are reluctant to spend a legacy “on hedonic goods”.
The research assigned to gifting grandmothers two different personalities: a well-educated teacher and a vivacious dancer. The researchers found that participants paired with the dancer were significantly more willing to spend her inheritance on concert tickets.
I like this. I think it underlines how much people tend to think of the giver when spending inheritances — and why people should be less nervous about giving early. Just be clear with your loved ones that this is inheritance money.
Family wealth plans
For me, these studies underline the need for a family wealth plan that involves everyone in sensible discussion — not always easy in some families, I appreciate.
Instead of offering to pay for something you would spend the money on, such as private education for the grandchildren, say: “We’d like to give you some inheritance early. What do you need? What are your goals?”
The gift might enable them to move to a house in a better state school catchment area. It might be used for a house deposit later.
Some children or grandchildren may not want the money now, because they’re making their own way and are determined to take the credit for their success.
This is where the individual savings account (Isa) can be useful as it’s more flexible than the pension. Fewer than 8 per cent of Isa holders use their full £20,000 annual allowance. Gifts that can help fund their Isa allowance grow free of capital gains tax, which can make them a great tool for giving early to those who don’t need the money now but might later.
If the gift is labelled for later use, encourage your loved ones to invest it to protect it from inflation.
Each family is different. And the tax situations of each individual add extra layers of complexity. But, given in the right way, early inheritances can bring families much closer and mean they’re spent more smartly.
Nathan Valbonesi is a Chartered Fellow of the CISI and leads the investment and wealth advice team at Weatherbys Private Bank
*Featured on the Financial Times website on 13th February 2026: How to give and not feel taken for granted.
What you need to know
This article does not constitute advice. Tax laws are subject to change and taxation will vary depending on individual circumstances.