{"id":23176,"date":"2025-06-24T09:48:42","date_gmt":"2025-06-24T09:48:42","guid":{"rendered":"https:\/\/www.rbcwealthmanagement.com\/en-uk\/insights\/making-tax-efficient-gifts-to-grandchildren\/"},"modified":"2026-05-26T18:21:28","modified_gmt":"2026-05-26T18:21:28","slug":"making-tax-efficient-gifts-to-grandchildren","status":"publish","type":"post","link":"https:\/\/www.rbcwealthmanagement.com\/en-uk\/insights\/making-tax-efficient-gifts-to-grandchildren","title":{"rendered":"Making tax-efficient gifts to grandchildren"},"content":{"rendered":"\n

Gifting money directly to your grandchildren could give them a valuable financial headstart to life as an independent adult. It could also be a tax-efficient way of passing on wealth <\/a>to the next generation by helping to manage your estate\u2019s inheritance tax<\/a> (IHT) liability.<\/p>\n\n\n\n\n\n\n\n\n
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Download: A guide to inheritance tax planning<\/h5>\n

Everything you need to know about leaving a tax-efficient legacy for your loved ones.<\/p>\n

Download now<\/a><\/strong><\/p>\n

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Why give money to grandchildren?<\/h2>\n\n\n\n

Young people today face a difficult financial future. University tuition fees<\/a> increase to \u00a39,535 a year for the 2025\/26 academic year1<\/sup>, and the average UK house price stood at \u00a3271,415 in March 2025 \u2013 that\u2019s 53.8% higher than a decade ago2<\/sup>.<\/p>\n\n\n\n

These challenges mean that gifting money directly to grandchildren<\/a> could make a bigger difference to their financial security and quality of life than if they were to wait for it to trickle down via their parents. Our research revealed the most popular reason for gifting was to support children or grandchildren with buying a home, followed by it being a treat, helping children or grandchildren with their day-to-day living expenses, and helping with wedding expenses. Just 5% suggested they are using gifting as a way to manage inheritance tax (IHT)<\/a> while 3% used it to help children or grandchildren with school fees<\/a>.3<\/sup><\/p>\n\n\n\n

Gifting doesn\u2019t just benefit the recipient, either. Our research found that 70% of Brits think gifting can have a positive impact on their wellbeing.3<\/sup><\/p>\n\n\n\n

How to gift money tax efficiently<\/h2>\n\n\n\n

While it\u2019s possible to leave money to grandchildren through your will, this might be one of the least tax-efficient ways to pass on wealth. It could also come too late to make a meaningful difference to your grandchild\u2019s life.<\/p>\n\n\n\n

There are several ways to pass on wealth to grandchildren while you\u2019re still alive. If done correctly, it could help to manage IHT by reducing the size of your overall estate. The option that\u2019s right for you will depend on a range of factors, including how old your grandchildren are, whether you want to offer support for specific goals (such as education fees or a house purchase) and your individual circumstances. Each option is also treated differently when it comes to inheritance tax, so it\u2019s important to speak to a financial or tax adviser before getting started.<\/p>\n\n\n\n

Junior ISAs and bare trusts<\/h2>\n\n\n\n

If your grandchild is still young, investing in a Junior ISA<\/a> is a great way of building up money for their future. Only parents or legal guardians can open a Junior ISA, but anyone can contribute, so long as those contributions don\u2019t exceed \u00a39,000 a year.<\/p>\n\n\n\n

Another option is to hold assets on behalf of your grandchild in a bare trust<\/a>. There are no investment limits, and the money can be used for the child\u2019s benefit before they turn 18, under limited circumstances, such as towards school fees (but returns may be taxed). If money or investments are put into a bare trust by grandparents (or anyone else who isn\u2019t the child\u2019s parent) the contents are taxed as if they belong to the child, which may mean there is little or no tax to pay on income or gains.<\/p>\n\n\n\n

Once your grandchild turns 18, they can use the money in a Junior ISA or bare trust however they wish.<\/p>\n\n\n\n

If you make regular gifts into a Junior ISA or bare trust, these might be classed as \u2018normal expenditure out of income\u2019 and therefore be exempt from inheritance tax. To qualify, the payments must be regular, form part of your normal expenditure, be made out of your income, and not affect your normal standard of living. The rules around this exemption are strict and it\u2019s important to seek advice.<\/p>\n\n\n\n

Lifetime gifts<\/h2>\n\n\n\n

If your grandchild is older and has more immediate financial needs, you might want to consider making outright gifts<\/a>. Each year, you can give away up to \u00a33,000 worth of gifts without these being added to the value of your estate for IHT purposes. You can also give up to \u00a32,500 to a grandchild who is getting married or starting a civil partnership.<\/p>\n\n\n\n

If you want to make a larger financial gift \u2013 perhaps to enable your grandchild to get onto the property ladder \u2013 this is known as a potentially exempt transfer, and you must live for at least a further seven years for it to be IHT free.<\/p>\n\n\n\n

Gifts out of surplus income<\/h2>\n\n\n\n

The \u2018gifts out of surplus income\u2019 exemption is a powerful way of making IHT-exempt gifts and avoiding excess income build up in your estate to create a future IHT liability. These types of gifts can be particularly useful for paying recurrent expenditure, such as grandchildren\u2019s school fees. However, the gifts must meet certain conditions:<\/p>\n\n\n\n