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Ask the Expert: Supporting Adult Children at Home and IHT Concerns
Monday 26 January 2026 12:01 am | Updated: Thursday 22 January 2026 2:45 pm
By: Marianna Hunt
Fidelity's personal finance specialist, Marianna Hunt, provides guidance for parents who are financially supporting their adult children while living together. This common family arrangement raises questions about potential inheritance tax (IHT) liabilities that many households face.
Parental Query: Covering Household Costs for Adult Children
Q: Our adult children reside in our family home. We cover all expenses including food, utilities, and council tax without charging rent. Does this create an inheritance tax liability that requires formal recording? These payments are funded through annual withdrawals from our Self-Invested Personal Pensions.
Expert Analysis: Understanding IHT Rules for Shared Living
A: It is commendably generous to allow your adult children to live at home without contributing to rent or household bills. According to research from Compare the Market, parents typically spend approximately £280 monthly (or £3,400 annually) supporting children aged 18 to 25 at home, a substantial financial commitment.
The concern that this generosity might result in a significant inheritance tax bill upon your passing is understandable. However, the specific circumstances of your living arrangement work in your favour regarding IHT considerations.
If your children lived independently and you directly paid their rent and bills elsewhere, different rules would apply. In that scenario, you might potentially avoid IHT liabilities if those payments came from surplus income without affecting your current lifestyle, though meticulous record-keeping would be essential to demonstrate this to HM Revenue & Customs under the 'gifting from surplus income' allowance.
Why Shared Household Expenses Differ from Formal Gifts
In your current situation, having your children reside with you creates a beneficial position for inheritance tax purposes. Technically, increased food bills, utilities, and council tax payments constitute regular household expenses rather than formal gifts.
For example, if supporting two adult children at home increases your monthly food and utility costs by £500, this simply represents higher household expenditure. Annually, this would naturally reduce your estate's value by £6,000 without requiring formal IHT gift recording.
This principle applies similarly to elderly dependent relatives living with you. Any additional costs incurred due to their presence—such as elevated food and utility bills—form part of ordinary household spending rather than taxable gifts.
When Financial Support Becomes a Taxable Gift
The situation changes significantly if you provide substantial financial assistance to help children establish independence. For instance, gifting £50,000 to each child for a house deposit constitutes a formal gift with IHT implications.
From the date of such a gift, the seven-year inheritance tax clock begins. If you survive seven years after making the gift, the amount falls completely outside your estate for IHT calculations. However, if you pass away within that seven-year period, the £50,000 gift returns to your estate's value for tax purposes.
Balancing Support with Financial Independence
Navigating the balance between supporting adult children and encouraging financial independence presents challenges. Some young adults remain at home due to genuine affordability constraints, while others with surplus income choose different spending priorities.
You might consider cultivating positive financial habits by establishing conditions for continued support. For example, allowing children to live rent and bill-free provided they contribute £200 monthly toward a house deposit savings fund or additional pension contributions.
This approach offers substantial savings compared to market-rate rental costs while helping establish lifelong financial foundations. The amount remains significantly below typical rental expenses while promoting responsible financial behaviour.
Important Considerations and Professional Advice
Please remember that this guidance does not constitute individual tax advice. Inheritance tax represents a complex area of financial planning requiring careful consideration of personal circumstances.
For many individuals and families, consulting a specialist tax adviser provides valuable personalised guidance tailored to specific financial situations and long-term planning objectives.
