We are all aware of the constant news and commentary surrounding the “cost of living crisis” impacting so many people across the country.  The crisis has been caused by rapid increases in energy costs (gas and electricity), fuel costs (petrol and diesel) and supermarket goods.  These costs increases have caused the country to be in a period of high inflation which is outstripping wage and benefit increases.  To combat this the Bank of England has started a process of increasing interest rates, the latest being a 0.5% increase to 2.25% on Thursday 22 September. Recently, the Bank of England has stated that it will “not hesitate” to hike interest rates further to curb inflation following news that the pound had fallen to a record low against the dollar.  Interest rate hikes immediately affect those with mortgages on either standard variable or tracker rate deals, and those coming to the end of fixed rate deals will also see their monthly repayments increase.  The hikes also affect those with other forms of debt including overdrafts, credit cards, car and home improvement loans and certain other forms of finance.

The government has, of course, taken steps to assist with this including the recent energy cap announcements and other measures announced in the “mini-budget”.

Wealthier individuals, who are not being as impacted by the crisis, may wish to help out their struggling or less well-off family members, friends, communities or other causes at this time.  Some of the recently announced measures also present some timely tax advantages which such individuals may wish to take the opportunity of utilising to provide even more benefit to others.

This note suggests a number of ways in which those willing and able to help out may wish to do so and how this may impact on their own estate and tax planning.

Gifts from capital

Every individual has an annual exemption of £3,000 per tax year which can be gifted without inheritance tax (“IHT”) consequences. This can be utilised to gift lump sums to children, wider family or friends to contribute towards their increased costs. There is also a small gift exemption of £250 (up to £5,000 per year) which people who want to help out but are reluctant to gift larger sums, may prefer.

Gifts to individuals that do not fall within the specific exemptions (for example because they are over £3,000), are known as potentially exempt transfers (“PETs”). If you survive more than seven years from making a PET then it does not form part of your estate for IHT purposes. However, should you die within seven years of making a PET, it becomes chargeable and may have IHT consequences.

It is therefore recommended that you take appropriate advice before making any gifts to ensure you understand any potential tax consequences.

Gifts from income

There is a further valuable, and often overlooked, exemption for gifts from “surplus income”, which, if undertaken correctly, are immediately exempt from IHT. Given the immediate tax relief, surplus income gifts are a very attractive option for individuals who want to help relieve the financial burden on their children, wider family or friends. Although rather simplified, gifts from surplus income must:

genuinely be gifts of income and not capital;

be of a level so as not to result in the donor having insufficient income left over to maintain their usual standard of living; and

be made as part of a settled pattern of giving, rather than on a one-off or ad hoc basis.

There are no limits to the amount you can gift from surplus income, as levels of income and “standards of living” will vary. However, if the rules for the gifts to be treated as out of surplus income are not met then the gifts become PETs. Consequently, we strongly recommend taking advice to ensure you will qualify for the exemption.


It may be that due to the current circumstances of the person or people you want to help (for example their age, relationship status or business interests) you do not feel comfortable simply giving them sizeable outright gifts. In this situation, making a loan to help meet the immediate financial needs might be a viable option.  This has various potential benefits as you can always demand repayment of the loan.  If then at a later date you decide you no longer need or wish for the loan to be repaid or if the individual’s circumstances have changed, you could decide to write off the loan. At that point, this would be a PET  and must be survived by at least seven years to ensure no further IHT consequences.

It is very important for the protection of all parties to document any loan, and the agreed terms of the loan, accurately.


Whilst we are currently in the midst of a cost of living crisis, the effects of which are likely to be with us in the longer term, you could consider setting up a trust or trusts to ring-fence a fund to provide for and protect your children, grandchildren or others for the future.

Setting up a trust could provide ongoing financial support and protection. The individuals establishing the trust can be appointed as trustees if they wish, in order to control how and when funds are distributed and to ensure that distributions are applied for their original intended purposes.


With the recently announced increases in the stamp duty land tax nil rate thresholds to £250,000 generally and £425,000 for first time buyers, parents may wish to take this opportunity to help their children on to the property ladder.

Parents may wish to help their children by gifting the full purchase price or contributing towards deposits for homes for their children. There are several ways for parents to help children on to the property ladder, each with different consequences.  It is therefore very important to seek advice on these options beforehand and where necessary ensure they are documented appropriately for the future protection of all parties.

Gifts to charity

There are several ways in which gifts to charity could be a meaningful and useful mechanism for those seeking to help others during the cost of living crisis. Whilst there has been an increase in demand for charitable services in virtually every charitable sector, there has, largely due to the cost of living crisis, inevitably been a decrease in donations.

Individuals may consider:

  • Donating to charities established with the objective of helping those who are struggling with the cost of living;
  • Continued donations to these causes helps those who are struggling on a much wider scale than direct gifts to family and friends;
  • Continuing to financially support charities you have previously supported;
  • Many charities are struggling to cope in the midst of the crisis, as the public at large are donating significantly less than previously. Continued support for your preferred charities, whether related to the cost of living crisis or otherwise, is a great way to help those who are indirectly affected by the rising costs of living; or
  • Setting up their own charity.

From an estate planning perspective, gifts to charities (whether during lifetime or on death through a Will) will be IHT exempt and, in some circumstances, reduce your income tax liabilities. Further, leaving a sufficient proportion of your estate to charity in your Will reduces the rate of IHT payable on the chargeable element of your estate from 40% to 36%.

Regardless of the route you choose to help those who are struggling with the rise in living costs, advice is always recommended to ensure that well-intended gifts do not result in undesirable tax or other inadvertent consequences. If you have any queries about this topic, please contact Matthew Barnett, Lara Persell or any member of the Private Client team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

Edwin Coe LLP is a Limited Liability Partnership, registered in England & Wales (No.OC326366). The Firm is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office address: 2 Stone Buildings, Lincoln’s Inn, London, WC2A 3TH. “Partner” denotes a member of the LLP or an employee or consultant with the equivalent standing.

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