Gifting money to grandchildren: everything you need to know
In this guide, we discuss everything you need to know about the complex topic of gifting money to your grandchildren.
Key takeaways
Grandparents gift up to £3,000 tax-free each tax year, this can be given to one grandchild or split among several grandchildren
You can make multiple small gifts of up to £250 to different people each tax year and tax-free gifts of up to £2,500 for weddings
As a grandparent, you can also name your child as a beneficiary on life insurance, which they can access when they're 18
If you're in a position to gift your grandchildren money, you might be wondering how to go about it and what the rules are regarding gifted money, taxes, and how to name your grandchildren as beneficiaries?
Keep reading to find out everything you need to know.
How much can I give as tax-free gifts to my grandchildren?
You can gift your your grandchildren as much money as you like, but if you want to remain under the annual exemption, tax-free gifts can be given up to the value of £3,000 per year.
This can be carried forward for one year if unused, allowing you to give £6,000 in the following tax year.
On top of this, you can make multiple small gifts of up to £250 to different people each tax year and tax-free gifts of up to £2,500 are allowed for a grandchild's wedding or civil partnership.
What are the rules surrounding gifting money?
The seven-year rule in the UK relates to inheritance tax and gifts you make during your lifetime.
It means that if you give a gift over your annual exemption amount and then live for at least seven years after making it, the gift won’t be counted as part of your estate for inheritance tax purposes.
However, if you die within seven years of gifting money, the value is added back to your estate and may be taxed.
The closer you die to the time of the gift, the higher the tax, but this can reduce over time through something called taper relief.
Taper relief on gifts (2025/26)
If you die within seven years of making a gift, taper relief can reduce the amount of inheritance tax due on that gift — but only if the total value of gifts made in the seven years before death exceeds the inheritance tax threshold (£325,000).
Years between gift and death | Tax rate on the gift |
|---|---|
0 to 3 years | 40% |
3 to 4 years | 32% |
4 to 5 years | 24% |
5 to 6 years | 16% |
6 to 7 years | 8% |
7 or more years | 0% (gift is tax-free) |
Information provided by GOV.UK.
Essentially, the seven-year rule helps determine whether gifts you’ve made are subject to inheritance tax when you pass away.
How does inheritance tax work with gifts?
Inheritance tax on gifts depends mainly on how much you give and how long you live after giving it. Most gifts you make while alive are known as Potentially Exempt Transfers (PETs).
If you survive for seven years after making a gift, it becomes completely tax-free. However, if you die within seven years, the gift may be counted as part of your estate and could be subject to IHT.
If a gift does become taxable, the standard inheritance tax rate is 40%, but taper relief can reduce the amount due depending on how many years have passed since the gift was made.
How else can I gift money to my grandchildren?
There are various ways you can gift money to your grandchildren, including:
Make regular payments to a Junior Individual Savings Account (JISA)
You can't open a savings account for your grandchild unless you're their legal guardian, but you can send regular JISA payments, helping your grandchild save up to £9,000 per year tax-free until they turn 18
Buy premium bonds
You can set up premium bonds in your grandchild's name and each month they'll be entered into a prize draw to win prizes up to £1 million tax-free, but they won't earn any interest in savings.
Contribute to their pension:
Grandparents can contribute to a child’s pension to a maximum of £2,880 a year, which the government tops up to £3,600 with the 20% tax relief.
It's worth noting your grandchild won't be able to access their pension until retirement age, so they won't be able to use it for any big life events such as buying a house or paying for a wedding, but this is an option to consider.
Expression of wish
This is also known as 'nomination of beneficiaries' and it's where you can choose to pass on any money left in your pension pot or life insurance policy to family when you die, which will be exempt from inheritance tax.
Setting up a trust
As a grandparent, you can create a trust to hold money, investments, or property for your grandchildren’s future — for example, to help with education, a first home, or long-term financial stability.
You can control how and when assets are distributed, with a grandchild typically gaining control at a certain age, e.g. 18.
What else can I gift to family members tax-free?
In addition to money, you can also gift grandchildren and other family members the following:
Personal items: Such furniture, jewellery, art, and antiques
Cars: or other vehicles such as vans or motor homes
Educational or living support: Including tutoring, school fees, or living costs
Property or land: a home or share of a property, but it’s only fully tax-free if you move out and don’t continue to benefit from it
Can I name my grandchild as the beneficiary of a life insurance policy?
Yes you can name your grandchild or grandchildren as beneficiaries on your life insurance policy.
However, they won't be able to access their share of the payment until they're 18 years old, so a guardian will need to be appointed to manage their money until this age if they're younger.
Writing your life insurance policy in trust means any payout your beneficiaries receive won't be counted as part of your estate, so your grandchildren won't have to pay any inheritance tax.
Find out more about taking out life insurance policies in trust and tax to see if it's the best option for you and your family.
Compare life insurance options with MoneySuperMarket
Getting a life insurance quote is quick and stress-free with MoneySuperMarket. Compare quotes from leading UK providers, and choose the best option to suit your personal circumstances.
As with any insurance quote, you can access the terms and assess any exclusions before committing to a policy.
Frequently asked questions
How does HMRC know about cash gifts?
HMRC learns about cash gifts primarily when they exceed the annual £3,000 exemption and need to be reported, especially as part of estate valuations after the donor's death. Gifts not meeting exemption criteria or exceeding exempt amounts must be reported.
Can I give my grandchild money to buy a house?
Yes, you can give your grandchild money to buy a house. However, be aware there may be tax implications if the amount exceeds the annual gift tax exclusion or affects your estate's tax liability. It's advisable to consult with a financial advisor or tax professional to understand these implications.
Can I still gift money if I'm receiving benefits or care?
You can still gift money if you're receiving benefits or care. However, you must not deliberately do this in an attempt to avoid any charges or reduce the amount of something you would have had to otherwise pay full price for.
This is known as deprivation of assets, and could result in you receiving less funding.
If you've gifted money before making a benefits claim, the Department for Work and Pensions (DWP) will look at when you made these transactions. They will also ask for evidence to suggest that gifting money was genuine.
Are there different rules for gifting money to minor grandchildren versus adult grandchildren?
You can gift your grandchildren money at any point during their lives by giving it to them in cash or transferring money into their account.
However, there may be different rules with junior bank accounts regarding how much you can pay in per month, plus other restrictions.
Can I specify what the gifted money should be used for?
If you're gifting money, you can suggest to the recipient what you would like them to spend it on, e.g. a house deposit, car, etc. But ultimately, it's their decision what they do with the cash once you've given it to them.
Author
Collette Shackleton
Content Writer
Collette Shackleton is a highly skilled Content Writer who has over nine years’ experience creating helpful and engaging personal finance content for consumers. Collette shares her experience as a...
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Beth Leslie
Senior Insurance Content Editor
Beth is an experienced writer and editor who specialises in financial and economic content. She is currently the Senior Insurance Content Editor for MoneySuperMarket. Beth is passionate about making...
