Read this before you start giving your money to family

Changes to the inheritance tax treatment of pensions combined with growing expectations of a wealth tax are encouraging many to speed up their plans to give away money.

That reaction is entirely understandable. Few of us would choose to leave more to the Treasury than necessary. But first things first: have you done enough planning to know that you can afford it? Before giving money away, it is worth working through a simple checklist.

Work out what you have, and what you will need

First, find out what you have: it is common to hold wealth across multiple pensions, ISAs, investment accounts, cash savings and other assets. Bringing everything together into a single view is an important step.

Then, build a cashflow plan: understanding your expected spending over time allows you to assess whether your wealth is likely to support the lifestyle you want throughout retirement.

Spending patterns often change over this period. Travel and leisure spending may be higher in the early years, while healthcare or care-related costs may become more significant later on.

The exact path will differ from person to person, but having a realistic starting assumption is essential. Consider which assets to draw on first: the order in which you access pensions, ISAs, cash savings and taxable investments can have a meaningful impact on the tax you pay and the longevity of your retirement pot.

Given next year’s change to inheritance tax rules for pensions, many investors are revisiting long-held assumptions about preserving their pensions. In some cases, drawing from larger pension pots earlier, while making careful use of available tax allowances, may be more efficient than leaving those funds untouched.

This may be particularly true if the next generation could face a combination of inheritance and income taxes on inherited pension wealth.

Check your fees

The next step is to review wealth charges and the efficiency of your investments: small differences in annual fees can have a surprisingly large impact because lower charges mean more of your money remains invested and working for you.

Over a retirement that could last two or three decades, what may appear to be a modest saving in annual fees can translate into tens or hundreds of thousands of pounds staying within the family. Put another way, a fee saving can make a material difference in offsetting the impact of tax or inflation rises over time.

Test your assumptions

Then stress-test your retirement plan: later life rarely follows a straight line. Higher inflation, increased spending, changing family circumstances and care costs can all affect how long your money lasts.

A robust plan allows you to model different scenarios and understand whether your finances can withstand changes to the expected path.

Only once these foundations are in place does the conversation about giving money away become meaningful. At that point, you can assess whether you genuinely have surplus capital or income that can be passed on without compromising your long-term financial security.

The appropriate route will vary from family to family. There is often merit in proceeding gradually rather than making a single irreversible decision because circumstances can change in ways that are difficult to predict today.

What should not vary is the order of decision-making. Before you settle on how much to give away, make sure you understand how much you are likely to need. Retirement peace of mind is every bit as valuable as tax efficiency, and the most successful plans achieve both.