Leaving Money to Grandchildren: A UK Guide

What are the main ways to leave money to grandchildren?

There are three common routes: lifetime gifts, a gift in your will, and a trust. Lifetime gifts may use annual and other exemptions and can fall outside your estate over time; a will leaves a legacy on death; a trust holds money for grandchildren until they are older. Many families combine them depending on circumstances.

Which gift exemptions can apply?

Several exemptions let you give money to grandchildren without it being added to your estate for inheritance tax. They include an annual exemption, small gifts, gifts on marriage, and regular gifts made out of surplus income. These can often be used together, and gifts between them can add up over the years (gov.uk, rules on giving gifts, as at July 2026, subject to change).

Exemption	Amount / rule (July 2026)
Annual exemption	Up to £3,000 of gifts per tax year in total
Small gifts	Up to £250 per person per tax year (if no other allowance used on them)
Wedding or civil partnership gift to a grandchild	Up to £2,500
Gifts out of surplus income	No fixed limit, if regular and affordable from normal income

Exemption

Amount / rule (July 2026)

Annual exemption

Up to £3,000 of gifts per tax year in total

Small gifts

Up to £250 per person per tax year (if no other allowance used on them)

Wedding or civil partnership gift to a grandchild

Up to £2,500

Gifts out of surplus income

No fixed limit, if regular and affordable from normal income

Source: gov.uk, rules on giving gifts. A wedding gift to a child is up to £5,000 and to another person up to £1,000. These figures are as at July 2026 and are subject to change.

The £250 small-gifts allowance cannot be combined with the annual exemption for the same person, so you cannot give a grandchild £3,000 under the annual exemption and also £250 as a small gift in the same year (gov.uk, as at July 2026, subject to change). Gifts out of regular income have no set ceiling, but you must be able to meet your usual living costs from what is left, and it helps to keep records (gov.uk, as at July 2026, subject to change).

The seven-year rule

Where a gift to a grandchild is larger than the exemptions cover, it is usually a potentially exempt transfer. No inheritance tax is due on it if you live for seven years after making it. If you die within seven years and tax is due, gifts made in the three years before death are taxed at the full rate, and gifts made three to seven years before death may benefit from taper relief on the tax (gov.uk, rules on giving gifts, as at July 2026, subject to change).

Taper relief reduces the tax on the gift, not the value of the gift itself, and it only applies once the total of gifts in the seven years before death is above the nil-rate band (gov.uk, as at July 2026, subject to change). Because the rules interact with your other gifts and your estate, the effect can vary a good deal between families.

Taper relief bands: 3 to 4 years 32%, 4 to 5 years 24%, 5 to 6 years 16%, 6 to 7 years 8% of the tax that would otherwise be due (gov.uk, as at July 2026, subject to change).

Leaving money to grandchildren in a will

A will lets you leave a fixed legacy or a share of your estate to grandchildren, and you can name each grandchild or leave a class gift such as "my grandchildren living at my death". Because a grandchild counts as a direct descendant, leaving your home to grandchildren can help you claim the residence nil-rate band of up to £175,000 on top of the £325,000 nil-rate band (gov.uk, passing on a home, as at July 2026, subject to change). Clear wording matters, so many people set this out carefully when they write their will. Our note on How to Write a Will covers the drafting basics.

A worked example (illustration only). A grandmother wants to help her three grandchildren. In one tax year she uses her £3,000 annual exemption by giving £1,000 to each, and because she made no gifts the previous year she carries forward that year's unused annual exemption, allowing up to a further £3,000 (gov.uk, as at July 2026, subject to change). Separately, one grandchild marries, so she gives a wedding gift of up to £2,500, which is exempt (gov.uk, as at July 2026, subject to change). These gifts sit outside her estate straight away. Change the amounts, the timing or the previous year's gifts and the position changes, so this is general information rather than a calculation for any real estate.

Using a trust for grandchildren

A trust holds money for grandchildren under the control of trustees until an agreed age or event, which many families prefer to handing a large sum to a young person outright. Trusts have their own inheritance tax treatment: for most trusts, transferring in more than the £325,000 nil-rate band can trigger a lifetime charge, and many trusts face periodic and exit charges of up to 6% on relevant property (gov.uk, trusts and inheritance tax, as at July 2026, subject to change). Gifts into most trusts do not benefit from the seven-year rule in the same way as outright gifts (gov.uk, as at July 2026, subject to change).

The right structure depends on the age of the grandchildren, the amounts, and what you want the trustees to be able to do, so it is one option some consider with a qualified professional. Our guide to setting up a trust for grandchildren looks at the common types and how they are taxed.

Bare trust. The grandchild is entitled to the money at 18 (16 in Scotland), and it is generally treated as theirs for tax. Source: gov.uk, as at July 2026, subject to change.

Discretionary trust. Trustees decide when and how much each grandchild receives, with its own periodic and exit charges of up to 6% (gov.uk, as at July 2026, subject to change).

Registration. Many trusts must be registered with HMRC's Trust Registration Service, so administration is a factor to weigh.

Where you are thinking about a life policy, an investment bond or a pension to benefit grandchildren, those are regulated products, and this is general information only rather than a recommendation. It can be worth discussing them with an FCA-authorised financial adviser who can consider your circumstances.

Leaving money to grandchildren in Scotland and Northern Ireland

Inheritance tax is a UK-wide tax, so the £325,000 nil-rate band, the residence nil-rate band and the gift exemptions apply across Scotland, England, Wales and Northern Ireland alike (gov.uk, as at July 2026, subject to change). What differs is the surrounding law. In Scotland a child is entitled to the money in a bare trust at 16 rather than 18 (gov.uk, types of trust, as at July 2026, subject to change), and Scotland has its own succession rules, including legal rights that can affect what a will can do. Where an estate touches more than one UK nation, it can be worth taking advice in each. For the wider picture, see our estate planning guide.

Frequently asked questions

How much money can I give my grandchildren tax-free each year?

You have an annual exemption of up to £3,000 of gifts in total each tax year, which you can split between grandchildren, plus small gifts of up to £250 per person to anyone you have not used another allowance on (gov.uk, as at July 2026, subject to change). Wedding gifts and regular gifts from surplus income may also be exempt, depending on circumstances.

Do grandchildren pay inheritance tax on money left to them?

Generally the estate settles any inheritance tax before grandchildren receive their share, rather than it being charged to them personally. Where the whole estate falls within the available nil-rate bands, no inheritance tax arises (gov.uk, as at July 2026, subject to change). A lifetime gift can be different if the giver dies within seven years, so the position can vary.

Can I give my grandchildren money to reduce inheritance tax?

Lifetime gifts can reduce the value of your estate over time, and gifts within the annual, small-gift and wedding exemptions are outside your estate straight away (gov.uk, as at July 2026, subject to change). Larger gifts may fall outside the estate after seven years. Because much depends on your wider circumstances, many people discuss this with a qualified professional first.

Is it better to leave money to grandchildren in a will or a trust?

It depends on the amounts and the ages involved. A will leaves a straightforward legacy, while a trust lets trustees hold money until grandchildren are older, at the cost of more administration and its own tax rules, including charges of up to 6% on relevant property (gov.uk, as at July 2026, subject to change). One option some consider is discussing both with a qualified professional.

Does leaving my home to grandchildren save inheritance tax?

Leaving a home to children or grandchildren can allow the residence nil-rate band of up to £175,000 to apply on top of the £325,000 nil-rate band, which may reduce the tax, depending on the estate's value (gov.uk, passing on a home, as at July 2026, subject to change). The extra band tapers away for estates worth more than £2,000,000, so it does not help every estate (gov.uk, passing on a home, as at July 2026, subject to change).

Can I set up a trust so a grandchild gets money at a certain age?

Yes, a trust can hold money and let trustees pass it on at an age or event you choose, which many families prefer to an outright gift to a young person. Trusts carry their own inheritance tax treatment, including possible lifetime, periodic and exit charges of up to 6% (gov.uk, as at July 2026, subject to change). It can be worth taking advice on the right type.

About Fairchild Oldfield

The Fairchild Oldfield team brings together estate planning, tax, independent financial advice and client care, working with families across England and Wales.

Fairchild Oldfield are estate planning specialists and will writers, not a firm of solicitors. This article is general information based on practical experience, not legal, tax or financial advice.

Important: This article is general information only and is not legal, tax or financial advice. Reading it does not create a professional relationship. It is based on the law of England and Wales, and other UK jurisdictions may differ. Figures and rules are current as at July 2026 and are subject to change. Before acting, many people choose to seek advice from a suitably qualified professional, such as a solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser, who can consider your individual circumstances.

Leaving Money to Grandchildren