Tax considerations for gifting to grandchildren in the UK

12/01/2023

For many individuals in the UK, gifting to grandchildren can be a great way to reduce their tax burden. But before entering into any gifting arrangement, it is important to understand the various tax considerations that come with it. In this blog post, we will discuss some of the key tax implications of gifting to grandchildren in the UK.

Inheritance Tax implications

In the UK, Inheritance Tax (IHT) applies when an individual passes away and leaves assets or property worth more than £325,000 (known as their “nil-rate band”). If this limit is exceeded, then IHT will be due at 40 per cent on anything above this threshold. One way that wealthy individuals can reduce their liability for inheritance tax is by gifting some of their assets or property to grandchildren during their lifetime; this could help them stay within the nil-rate band. However, there are a few things that need to be taken into account when considering making these gifts:

Gift exemptions

The first thing to consider is whether any of the gifts qualify for one of the gift exemptions available under UK law. These exemptions include gifts made out of normal income (up to £3,000 per year), small gifts up to £250 per person per year, wedding or civil partnership gifts up to certain thresholds depending on relationship and so on. It is important to understand which exemptions may apply before making any large gifts as this could significantly reduce your IHT liability.

Lifetime gifts

Another important point when considering making lifetime gifts is that these must be made absolutely and irrevocably – meaning that once you have gifted something you cannot reclaim it afterwards and neither can you attach any conditions or strings attached. You should also bear in mind that even if something qualifies for a gift exemption it may still need to be reported on your annual self-assessment form – so make sure you check all relevant rules and regulations before proceeding with any large-scale gifting arrangements.

Gifts with reservation of benefit rules                                 

Finally, it’s important to note that certain types of lifetime gifting may fall under ‘gifts with reservation of benefit rules’, which means they are not exempt from IHT and may still need to be declared on your self-assessment form each year. For example, if you give a property but continue living in it as your primary residence then this would likely fall under these rules – meaning you would still have an IHT liability for any value over your nil rate band despite having gifted the property away. It’s therefore essential that you take professional advice before entering into any complex gifting arrangements as there could be significant tax implications if not done correctly.

Gifting assets or property during your lifetime can offer significant advantages when it comes to reducing your Inheritance Tax burden in the UK – but only if done properly and within all applicable laws and regulations. It’s therefore vital that anyone considering such arrangements takes professional advice beforehand in order to ensure they understand all relevant tax considerations and remain compliant at all times.