The Grandparents' Guide to Gifting & Legacy

Most grandparents want to do two things: help the grandchildren while they are around to enjoy it, and pass on what is left without a big slice going to the taxman. This guide walks through both — the gifting allowances, the famous seven-year rule, the inheritance-tax thresholds, and the tax-efficient ways to give and to bequeath.

Why this matters now

Helping a grandchild onto the housing ladder, clearing student debts, or simply building a nest egg they can use one day is one of the great pleasures of later life. Done well, lifetime giving can also shrink a potential inheritance-tax (IHT) bill. Done without a plan, well-meaning gifts can create unexpected tax or leave you short later.

There is a timely reason to think about this now: from April 2027, unused defined-contribution pension pots are due to be brought into the estate for inheritance tax (a confirmed government change, sourced as of June 2026). For many families that tips an estate over the threshold for the first time, so understanding gifting and the nil-rate bands matters more than it used to. Our estate planning tools let you model your estate under the current and the post-2027 rules side by side.

The gifting exemptions you can use every year

You can give away a surprising amount completely free of inheritance tax using the standard exemptions (figures illustrative and approximate, sourced as of June 2026, per GOV.UK and HMRC):

• Annual exemption — £3,000 a year. You can give away £3,000 in total each tax year with no IHT implications at all. If you did not use last year's allowance you can carry it forward one year, so a couple could pass on up to £12,000 in a single year between them.
• Small gifts — £250 per person. You can give up to £250 to as many different people as you like each year. You just cannot combine it with the £3,000 allowance for the same grandchild.
• Wedding gifts. When a grandchild marries you can give them up to £2,500 tax-free (it is £5,000 for your own child and £1,000 for anyone else). The gift must be made before the big day.
• Normal expenditure out of income. Regular gifts paid from your surplus income — not your capital — are exempt, provided they do not affect your own standard of living. Paying a grandchild's monthly music lessons or topping up a Junior ISA each month can qualify. Keep a simple record of the income and the payments.

These allowances reset every tax year, so steady, planned giving is far more powerful than one big gift. A good set of financial planning tools helps you see what you can comfortably give without risking your own retirement.

The seven-year rule, PETs and taper relief

Larger gifts that go beyond the exemptions are usually Potentially Exempt Transfers (PETs). If you live for seven years after making the gift, it falls completely outside your estate and there is no IHT to pay on it. Die within seven years and it is counted back into your estate.

This is where taper relief is widely misunderstood. Taper relief reduces the tax due on a gift, not the value of the gift, and it only applies where your gifts in the seven years before death add up to more than the nil-rate band (£325,000). For most ordinary gifts that sit within that band there is no tax to taper, so taper makes no difference. Where it does apply, the tax reduces on a sliding scale: 32% for gifts made 3–4 years before death, 24% at 4–5 years, 16% at 5–6 years and 8% at 6–7 years (HMRC, sourced as of June 2026).

Because the seven-year clock matters so much, it pays to start earlier rather than later, and to keep clear records of what you gave and when. You can stress-test your plan to check a large gift today still leaves you comfortable through a long retirement.

The nil-rate bands: what your estate can pass on tax-free

Two thresholds decide how much of your estate escapes the 40% inheritance-tax rate (all figures illustrative, sourced as of June 2026, per GOV.UK):

• Nil-rate band (NRB) — £325,000. The slice of any estate that is tax-free. It has been frozen for years and is set to stay frozen until at least April 2030.
• Residence nil-rate band (RNRB) — up to £175,000. An extra allowance when you leave your home to direct descendants — and that includes grandchildren, not just children. It tapers away by £1 for every £2 your estate is worth over £2 million.

Together that is up to £500,000 for one person. Because a surviving spouse or civil partner inherits any unused bands, a couple can pass on up to £1 million before IHT bites. Anything above the threshold is generally taxed at 40% (or 36% if you leave at least 10% of the net estate to charity). If your estate is anywhere near these figures it is worth speaking to a qualified financial adviser.

Tax-efficient ways to give to grandchildren

How you give matters as much as how much. Some of the most popular routes for grandchildren (illustrative, sourced as of June 2026):

• Junior ISA. Up to £9,000 can go into a child's Junior ISA each tax year, growing free of income and capital-gains tax. The child takes control at 18. Note the parent (not the grandparent) opens it, but anyone can pay in.
• Bare trust or designated account. Lets you set money aside for a specific grandchild with you as trustee until they are 18. The gift is theirs from the outset, which starts the seven-year clock.
• A pension for a grandchild. You can pay into a Junior SIPP — decades of growth, though they cannot touch it until their late 50s.
• Education and other regular help can often be funded under the normal-expenditure-out-of-income exemption above.

We cover each of these in detail in our companion article on gifting money to grandchildren, and the lifetime-versus-bequest choice in giving with warm hands.

More in this series

This guide is the hub of a wider series for grandparents. Alongside the detailed pieces on gifting money to grandchildren, inheritance tax explained for grandparents, giving with warm hands and leaving money to grandchildren in your will, there are occasion-based guides for the moments you are most likely to want to help:

• Helping grandchildren with education costs — Junior ISAs, bare trusts, school and university fees.
• Wedding gifts and inheritance tax — the £2,500 grandparent exemption and how to combine it.
• Funding grandchildren's travel and gap years — gifting for a big trip within the exemptions.
• Sharing your life lessons with grandchildren — the non-financial legacy.

For a single quick-reference summary of the whole series, see our grandparents' gifting and legacy checklist, then model your estate to put real numbers against your own plan.

Wills, bequests and getting the inheritance-tax picture right

What you do not give in your lifetime passes under your will. A few essentials for grandparents:

• Name grandchildren explicitly or use a per stirpes instruction so a grandchild inherits their late parent's share.
• Money for under-18s is usually held in trust until they come of age; you can set the age (commonly 18 or 25) and appoint trustees you trust.
• Leaving the home to children or grandchildren is what unlocks the residence nil-rate band above.

Our detailed walkthroughs cover inheritance tax explained for grandparents and leaving money to grandchildren in your will. To put real numbers against your own situation, model your estate with our planning tools, then have a solicitor draft or update the will itself.

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.