How much money can I give tax-free to my grandchildren?
Key takeaways
Grandparents can gift up to £3,000 each tax year under the ‘inheritance tax annual exemption’; this can be given to one grandchild or split among several grandchildren
You can also make multiple small gifts of up to £250 to different people each tax year, plus wedding gifts of up to £2,500 to a grandchild, without inheritance tax implications
As a grandparent, you can name your grandchild as a beneficiary of a life insuranc policy, helping provide them with financial support for the future
How much can I give as tax-free gifts to my grandchildren?
You can gift your grandchildren as much money as you like, but if you want your gifts to fall within the ‘inheritance tax annual exemption,’ you can give away up to £3,000 each tax year without it counting towards the value of your estate.
This can be carried forward for one year if unused, allowing you to give £6,000 in the following tax year.
You can also make any number of gifts of up to £250 to different people each tax year without them counting towards inheritance tax. Further, you can give a grandchild up to £2,500 tax-free for a wedding or civil partnership gift.
What are the rules surrounding gifting money?
The seven-year rule in the UK relates to inheritance tax and certain gifts you make during your lifetime.
It means that if you give a gift that isn’t covered by an exemption 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 gift may be taken into account when calculating inheritance tax. In some cases, inheritance tax may be due on the gift, although the amount of tax can reduce after three years through taper relief. In general, the longer you survive after making the gift, the lower the potential tax liability.
Taper relief on gifts (2026/27)
If you die within seven years of making a gift, taper relief can reduce the amount of inheritance tax due on that gift. However, it only applies if inheritance tax is payable – if, for example, the total value of gifts made in the seven years before death exceeds what is known as the inheritance tax nil-rate band (£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 during your lifetime will be liable for inheritance tax when you die.
How does inheritance tax work with gifts?
Inheritance tax on gifts depends mainly on the type of gift you give, 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 will usually fall outside your estate for inheritance tax purposes. However, if you die within seven years, the gift may be counted as part of your estate and could be subject to inheritance tax
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.
What are the tax implications of gifting money from surplus income?
Gifts made from your regular surplus income are immediately exempt from inheritance tax if they don’t affect your standard of living. Just take care to keep clear records to show the payments came from income – rather than capital – as your executors may need to provide evidence to HMRC.
How else can I gift money to my grandchildren?
There are various ways you can gift money to your grandchildren, including:
Making regular payments into a Junior Individual Savings Account (JISA)
While only a parent or legal guardian can open a JISA, anyone – including grandparents – can pay into one. You can help your grandchild save up to £9,000 per year tax-free, with the savings or investments in a JISA growing free from income tax and capital gains tax until they turn 18.
Buying Premium Bonds
You can buy Premium Bonds in your grandchild’s name. Rather than earning interest, they’ll be entered into a prize draw each month, giving them the chance to win tax-free prizes of up to £1 million.
Contributing to their pension
Grandparents can contribute up to £2,880 a year into a child’s pension. The government then adds 20% basic-rate tax relief, topping up the annual contribution to £3,600.
It’s worth noting your grandchild won’t normally be able to access their pension until retirement age. The earliest you can take money from your pension is currently usually 55, rising to 57 from 2028 (and this age is expected to rise over time). This means your grandchild won’t be able to use it for any big life events, such as buying a house or paying for a wedding, That said, starting a pension early will give your grandchild’s savings decades to benefit from compound growth. (‘Compounding’ means getting growth on your growth).
Other ways to leave money to your grandchildren
Expression of wishes
You can complete an ‘expression of wishes’ – also known as a ‘nomination of beneficiaries’ – which tells your pension provider who you’d like to receive any money left in your pension pot when you die. This isn’t a lifetime gift, but can be an effective way to pass on wealth to future generations. Just be sure to check the current tax rules, as the treatment of inherited pensions is set to change from April 2027.
This next one should also not be included alongside ‘gifts in your lifetime’ – but can work under ‘Other ways to leave money to your grandchildren’ heading
Set up a trust
As a grandparent, you can set up a trust to hold money, investments or property for your grandchildren’s future.
A trust can give you greater control over how and when assets are distributed, with your grandchild typically gaining access at a specified age, or when certain conditions are met.
But this will depend on the type of trust you choose, so it’s worth taking legal or financial advice before setting one up.
What else can I gift to family members?
In addition to money, you can also gift grandchildren and other family members other assets. These gifts are generally subject to the same inheritance tax rules as cash gifts.
Personal items: Such as 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 of a life insurance policy.
However, they won't be able to access their share of the payout until they’re 18 years old. If they are under 18, the money will typically be managed by trustees or another appointed adult until they’re old enough to take control.
Writing your life insurance policy in trust means any payout your beneficiaries receive won't be counted as part of your estate for inheritance tax purposes. This can ensure more of your money goes to your chosen beneficiaries.
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. We can help you compare quotes from a range of leading UK providers, so you can choose the best option to suit your personal circumstances.
As with any insurance quote, it’s important to read the terms and assess any exclusions carefully before committing to a policy.
Frequently asked questions
How does HMRC know about cash gifts?
HMRC doesn’t usually know about cash gifts at the time they’re made. However, if you die within seven years of making a gift, your executors may need to report it as part of the inheritance tax process. With this in mind, it’s important to keep records of any significant gifts you make.
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 gift isn’t covered by an inheritance tax exemption. If you’re planning to give a large sum, it’s worth seeking financial or tax advice.
Can I still gift money if I'm receiving benefits or care?
Yes. You can still gift money, but you need to be careful if you get means-tested benefits or local authority funding for care.
If you deliberately give away money or other assets in an attempt to increase your entitlement to benefits – or to reduce the amount you pay towards care – it could be treated as ‘deprivation of assets.’ It could result in you receiving less funding.
If you've gifted money before making a benefits claim or applying for care funding, 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. The inheritance tax rules are the same, irrespective of whether your grandchild is a minor or an adult.
However, there may be different rules with junior bank accounts regarding how much you can pay in per month, plus other restrictions. For example, with a Junior ISA, annual contributions will apply.
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, such as a house deposit, university costs or a car, etc. But ultimately, unless the gift is made through a formal arrangement (such as a trust) it’s their decision what they do with the cash once you've given it to them.
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Collette Shackleton
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Collette is an experienced Content Writer at MoneySuperMarket, helping people make sense of money and insurance topics without the jargon. She shares her experience as a first-time Mum and top...
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