Gifting Money to Grandchildren: The Tax-Free Allowances

Giving money to grandchildren is one of life's pleasures — and, used well, the UK's gifting allowances let you do a lot of it free of inheritance tax. Here is how the main exemptions work, and the most tax-efficient ways to pass money down a generation.

The allowances you can use every year

You do not need anything clever to start giving tax-efficiently — the standard exemptions are generous if you use them consistently (figures illustrative and approximate, sourced as of June 2026, per GOV.UK and HMRC):

• £3,000 annual exemption. Give up to £3,000 in total each tax year, free of inheritance tax. Unused allowance can be carried forward one year only.
• £250 small gifts. Give up to £250 to as many individual grandchildren (or anyone else) as you like each year — just not on top of the £3,000 allowance to the same person.
• Wedding gifts of £2,500. When a grandchild marries or enters a civil partnership you can give up to £2,500 tax-free, if it is given before the day.
• Regular gifts from income. If you make regular gifts out of your surplus income (not capital) that do not dent your standard of living, they are exempt with no upper limit. Keep records.

Because each allowance refreshes every 6 April, planned annual giving moves far more out of your estate over time than a single lump sum. Mapping it out with proper financial planning tools helps you stay generous without risking your own security.

Bigger gifts and the seven-year rule

Want to give more than the allowances — say a house deposit? Larger gifts are Potentially Exempt Transfers: live seven years after making the gift and it leaves your estate entirely. Within seven years it counts back in, though the tax can taper where your total gifts exceed the £325,000 nil-rate band. For most family-sized gifts within that band, the rule of thumb is simple: give early and keep a record of the date and amount.

A worked example: a grandparent gives a grandchild £50,000 toward a flat. It is a PET. If the grandparent lives seven more years, it is fully outside the estate. If they die after, say, four years and their total gifts are within the nil-rate band, there is still no tax to pay — the gift simply uses part of the band. (Illustrative; your own position depends on your full gift history and estate.)

The most tax-efficient ways to give

How you hold the gift matters (all illustrative, sourced as of June 2026):

• Junior ISA — up to £9,000 a year. Tax-free growth; the grandchild takes control at 18. A parent opens it, but grandparents can pay in.
• Bare trust / designated account. The money is legally the child's from day one (starting the seven-year clock) but you stay in control as trustee until they are 18.
• Junior SIPP (a pension for a child). Decades of tax-advantaged growth, locked away until their late 50s — a true long-term legacy.
• Premium Bonds or a children's savings account for smaller, accessible gifts.

If your estate is large enough that inheritance tax is a real concern, it is worth combining gifting with wider estate planning rather than looking at gifts in isolation.

Where this fits in the bigger picture

Gifting is one strand of helping the next generation; bequests in your will are the other. For the full picture — the nil-rate bands, wills and trusts, and the April 2027 pension change — read our grandparents' guide to gifting and legacy. If you would like tailored help, a regulated adviser can model your specific situation.

This is general information, not personal financial, tax or legal advice. Every figure is illustrative and approximate, sourced as of June 2026, and the rules change — speak to a qualified financial adviser, and a solicitor for wills and trusts, before you act.