How inheritance tax is linked to gift-giving
Each tax year, which runs from 6 April to the following 5 April, you can gift up to a total of £3,000 in assets or cash to your grandchildren without paying any inheritance tax on it. If you gift more than £3,000, you'll pay inheritance tax only if you die within seven years of giving. So, in summary, if you survive more than seven years (or your gifts are worth less than £3,000 a year), the gifts will be free from tax. That's because they aren’t counted as part of your estate.
Inheritance tax is charged at 40% on any gifts valued over £3,000 that are given less than three years before you die. Gifts made three to seven years before your death are taxed on a sliding scale, which is known as ‘taper relief’.