Rise of the 'boomerang kids' comes with big financial implications for families: Sarah Coles

There are all sorts of reasons for this: adult offspring at home are more likely to be students or out of work than other people their age. There’s a growing problem of unemployment among this age group: with 14.6% of those aged 18 to 24 out of work. Meanwhile, the number of graduate jobs on offer has almost halved over the past year. Businesses face a rising minimum wage – particularly for younger workers, and additional taxes on pay. It means some are cutting back on hiring younger, inexperienced staff and some are investing in technology to replace entry-level jobs.

However, this isn’t just about employment. Of all adult offspring still living at home aged 22-64, almost 73% were in work. In many cases, pay just isn’t enough to cover the cost of a place of their own.

The English Housing survey shows private renters aged 16-24 spent 46% of their income on rent. That compares to 36% overall. Meanwhile, soaring property prices make it incredibly difficult to save a big enough deposit. The Resolution Foundation found that in most parts of the country, the size of a 5% deposit needed for a small property has more than doubled relative to median earnings over the past 30 years.

Some young people will have moved back home to save on rent, so they can build a deposit, while others will never have moved out, because rents are sky high. This takes a particular toll when rising prices have made everything else so much more expensive too.

It clearly has a significant financial impact on young people. They’re now buying a property at an average age of 34, and many will be buying even later. Because of how house prices have risen, they’ll take on a huge chunk of debt at this stage, so more of them are spreading their mortgage repayments over 30 years. If they trade up or remortgage to dip into the equity in their home, they could end up repaying the mortgage up to retirement age or beyond.

Typically, when the mortgage is repaid, people will supercharge their pension contributions as they approach retirement. If they lose this window of opportunity, they face the prospect of retiring later or on a lower income. Those who use their pension tax-free cash to pay off the mortgage need to consider the impact on their retirement income. And those who continue to pay the mortgage in retirement need to ensure they have enough income to cover the cost.

Their parents may suffer too, because with more mouths to feed and bigger bills, they don’t get an empty nest period before retirement in order to boost their pension contributions. If they want to downsize when the kids leave home, to pay the mortgage off or supplement their retirement income, they may be forced to postpone it while their kids are at home.

If you’re in this position, there are some things you can do. First is to talk to your adult offspring about your living arrangements. You might not want to offer the same level of support they got as a child, so you need to come to arrangements as adults living in the same household. If they’re working, this discussion could also include how much they can contribute.

Parents will disagree over whether their adult children should pay rent. Some will start with a rent-free arrangement while they are looking for work. Once they are employed, they could pay a nominal rent, based on what they can afford. You may want to use this to boost your pension, or to put the money aside to help them cover a rental or property deposit. One option could be to arrange for £4,000 of this to go into a Lifetime ISA this year, so they get the government bonus to go towards buying a home of their own.

It’s early days for us at the moment. We’re still negotiating over how much noise it’s acceptable to make after 11pm, just how loud music needs to be, and whether it’s acceptable to eat all the yogurt in the house and put the pots back in the fridge. Difficult conversations about working and paying rent might have to wait for next week.

Taxes are set to rise

Nobody benefits if Budget speculation kicks off in the next couple of weeks and throws everyone into turmoil for months. However, Chancellor John Healey wouldn’t have to mention a single tax for us to face higher bills next year, so it’s worth planning for the hikes we already know are on the way.

The personal allowance and income tax thresholds have been frozen since 2021/22 and are expected to remain that way until at least 2031. It means that if Healey says nothing about the thresholds, pay rises will drag more people into paying income tax and more into paying bigger bills. When you cross a tax threshold, it’s not just income tax you have to worry about. You may also pay more tax on savings and investments outside ISAs or other tax wrappers.

To make matters worse, from next April, rules announced at the last Budget mean you’ll pay an extra two percentage points on savings interest and income from property. To add insult to injury, for those under the age of 65, the Cash ISA allowance will also drop from £20,000 to £12,000 in April. This will mean those who are building their savings, or receive a windfall and need to keep it in cash, will be able to protect less of it from the taxman, and are likely to face bigger tax bills.

The frozen tax thresholds have garnered plenty of attention, but there are other tipping points that haven’t moved for years – including the £100,000 cliff edge for losing your personal allowance for tax and government support for childcare, which has never moved, the nil rate band for inheritance tax, which hasn’t changed since April 2009 and the residence nil rate band which hasn’t moved since it reached its current level in 2020. The stamp duty threshold is also at the same level it was at in 2006. Since then, the average house price has increased by more than £120,000.

Another significant change on the cards is that from next April, pensions will be drawn into the inheritance tax net, and unspent defined contribution pension pots will be added to the value of the estate, when IHT is being calculated. The Treasury estimates that this will drag another 10,500 estates into the inheritance tax net that year, hike the amount of tax paid by 38,500 estates and increase the tax due by £34,000 each on average.