How to give away cash without paying tax

There are tax-free ways to make cash gifts to your grandchildren

Published: June 18, 2019 at 1:38 pm

If you have some spare money, what better than to give it to grandchildren? But I’m often asked, how can you do that safely without paying tax?

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In fact, such gifts are normally tax-free. Two taxes just might be due – but both are very unlikely.

Inheritance Tax

Most of us need not worry about Inheritance Tax.

Only about one in 20 estates pay it; 95% do not.

This year you can leave at least £325,000 without Inheritance Tax being due at all.

If your estate consists mainly of your home and you are leaving it to your children or grandchildren, then you can usually leave £475,000 before tax. If you are a widow or widower whose late spouse left you everything, then you can usually double those amounts, to £650,000 or £950,000.

You can give any number of gifts up to £250 each and, separately, other gifts in the year totalling £3,000 without them coming into the arithmetic at all.

A wedding gift of £2,500 to a grandchild is also ignored. Any gift you make is exempt from Inheritance Tax if you live at least seven years after making it.

Capital Gains Tax

This can arise if you give investments or valuable items rather than money. You will be assessed for Capital Gains Tax on their growth in value between acquiring them and giving them away.

If your total gains in this tax year are less than£12,000, then no tax will be due.

If your grandchild was born between 1 September 2002 and 2 January 2011, they should have a child trust fund set up by the Government, which you can put
money into.

A parent can open a Junior ISA for a child under 18 and grandparents can add to that.

The maximum that can be paid into either this year is £4,368. You can open a child savings account in their name (you’ll need ID for them and you) or, if under 16, open a National Savings Investment account.

Any interest below £1,000 a year will be tax-free. You can also buy them premium bonds.

Finally, you might think it goes without saying, but never give away money you may need yourself.

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