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’.

Any part of the annual £3,000 exemption which isn’t used in one tax year can be carried over to the following year. However this only applies if it’s used in the following tax year; it can’t be carried over any further.

The main difference between gifting to a grandchild and gifting to a child

When it comes to weddings or civil ceremonies, you’re allowed to give gifts worth up to £2,500 to a grandchild or great-grandchild in a year (on top of your annual exemption). That figure increases to £5,000 if it’s your child. The gift needs to be given before the wedding or civil ceremony, and the wedding has to go ahead for it to be exempt from tax.

It might be worth talking to a specialist life insurance adviser for more information on gift giving. As a minimum, make sure that you keep a record of any gifts that you give to relatives.

Comparing life insurance

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