Gifting Money to Grandchildren UK (2026): IHT Exemptions, Trusts & Junior ISAs

Several IHT exemptions allow grandparents to give to grandchildren free of IHT: (1) Annual exemption — each grandparent can give up to £3,000 per tax year to any combination of people (including multiple grandchildren) free of IHT, with up to one previous year's unused allowance carried forward. (2) Small gifts exemption — each grandparent can give up to £250 per tax year to any number of separate individuals, free of IHT, as long as no other exemption is used for that same person in the same year. (3) Wedding / civil partnership gift — a grandparent can give up to £2,500 to each grandchild on or shortly before their wedding or civil partnership, free of IHT. (4) Normal expenditure out of income — regular gifts from surplus income (after maintaining your usual standard of living) are immediately IHT-exempt in any amount. (5) Potentially exempt transfers — larger lump-sum gifts are PETs and become fully IHT-exempt after seven years. These exemptions are per grandparent, so a couple can together give significantly more.

A grandparent can give up to £2,500 to a grandchild as a wedding or civil partnership gift, and this amount is immediately exempt from IHT — it does not use up the annual exemption and does not start a seven-year PET clock. The gift must be made on or before the wedding day (not after), and the wedding must actually take place. If the wedding is called off after the gift has been made, the gift may lose its exempt status. The £2,500 limit applies per grandchild — so two grandparents can together give £5,000 to a grandchild free of IHT in addition to their own annual exemptions. For comparison, parents can give up to £5,000 each as a wedding gift, and other relatives and friends can give up to £1,000 each. The gift must be a genuine transfer — not a loan.

The normal expenditure out of income exemption (IHTA 1984 s.21) is one of the most powerful — and underused — IHT exemptions available to grandparents. It applies to gifts that: (1) are part of a regular pattern of giving (not necessarily exactly the same amount each time, but habitual); (2) are made out of income (after-tax earnings, pension payments, rental income, investment income — not capital); and (3) leave the grandparent with enough income to maintain their normal standard of living. Unlike other exemptions, there is no annual limit. A grandparent who receives a £60,000 pension and spends £40,000 on living costs could in principle give £20,000 per year to grandchildren free of IHT under this exemption — immediately, with no seven-year wait. The key is regularity and documentation: HMRC Form IHT403 will ask the executor to show the pattern of giving and that it came from income. Keep records.

For younger grandchildren, a bare trust is often the better structure. A bare trust holds assets in the name of a trustee (often the parent or grandparent) for the absolute benefit of the grandchild beneficiary. The beneficiary cannot access the money until age 18, but from that point it is theirs absolutely. Tax treatment: the gift into the bare trust is a PET (potentially exempt from IHT after seven years), and the income from the bare trust is taxed as the grandchild's income (which means their personal allowance of £12,570 per year applies before income tax is due). This is more tax-efficient than income accumulating in an account in the grandparent's name. For very large sums (over the nil-rate band) or where the grandparent wants ongoing control, a discretionary trust may be considered — but discretionary trusts are subject to periodic and exit IHT charges, which bare trusts avoid. Junior ISAs are simpler than bare trusts for smaller amounts.

Yes — grandparents (and anyone else) can contribute to a grandchild's Junior ISA. The annual Junior ISA subscription limit is £9,000 (2026/27). Only the child's parent or legal guardian can open the Junior ISA, but once opened, anyone can pay into it. Contributions count toward the child's Junior ISA limit, not the grandparent's adult ISA limit. The child cannot access the funds until they turn 18, at which point the JISA converts to an adult ISA. For IHT purposes, contributions to a JISA are gifts and are treated accordingly — the annual exemption, normal expenditure out of income exemption, or the seven-year PET clock applies depending on the size and frequency. Unlike a bare trust, a JISA has a strict subscription limit and the funds must remain in cash or stocks within HMRC-approved JISA providers.

A gift that exceeds the available IHT exemptions is a potentially exempt transfer (PET). If the grandparent dies within seven years, the PET becomes chargeable and is included in the cumulative estate for IHT. Taper relief reduces the effective tax rate from 40% (0–3 years) to 8% (6–7 years) on the amount above the nil-rate band. The primary liability for IHT on the PET falls on the grandchild (the donee) — not on the estate. If the grandchild does not pay, the executor is secondarily liable. In practice, grandchildren who have already spent the money may struggle to meet an unexpected IHT liability. To protect against this, some grandparents take out a seven-year decreasing term life insurance policy (sometimes called a 'gift inter vivos' policy) to cover the potential IHT liability if they die within the seven-year period. The policy should be written in trust for the grandchild to avoid adding to the estate.

Yes — you can leave assets directly to grandchildren in your will, bypassing your adult children. This is called a 'generation skip' and can be highly IHT-efficient if the children are already wealthy and would otherwise face a second IHT charge when the assets pass from them to the grandchildren. By leaving directly to grandchildren, the assets are only subject to IHT once (in your estate) rather than twice. The grandchildren should be specifically named in the will — or the will can use a class gift ('to my grandchildren living at the date of my death in equal shares') if you want to include all grandchildren. For minor grandchildren, consider whether to leave assets outright (accessible at 18 under statute) or in a will trust (giving you control over the age of access or the distribution terms). You can also use a deed of variation within two years of your death to redirect assets from children to grandchildren.