Grandparents plan to pass on wealth: How to do it tax efficiently

Most grandparents across the country are planning to pass on their accumulated wealth to children and grandchildren when they die. But when we’re talking about grandparents being worth an average of £350,634 each (according to research by Charter Savings Bank) leaving a legacy and making gifts tax efficiently is important. And of course some grandparents have wealth at far higher levels than this – often without their children being aware of it until they’ve passed away.

It’s wealth that many want to pass on to the next generation. 50% plan to pass some of their wealth to grandchildren, while 74% will help their children. It means that many considering their legacy think the family they leave behind will be better off. More than half (52%) of grandparents believe the next generation will generate more wealth than them.

Paul Whitlock, Director of Savings at Charter Savings Bank, said: “Baby boomers may be the richest generation ever, but they are optimistic that their families will be better off than them. This may be difficult to believe for millennials struggling to reach the property ladder but much of their grandparents’ wealth will eventually find its way to them either through gifting or inheritance.”

They key word here is ‘eventually’. Someone in their twenties now could be waiting to receive an inheritance from their own parents when they’re in their seventies. Or they might receive something directly from their grandparents when they’re in their forties or fifties. For many, that’s a welcome windfall, but often far too late in life to make the difference they would have liked.


Gifting your wealth allows you to see the benefits of your generosity while you’re still alive. With younger generations struggling financially, gifting can also be a way to improve their financial security in the long term.

It’s an appealing option for many grandparents. 40% are either already gifting cash to their children and grandchildren or plan to do so. Whether you’re providing funds to put down a deposit on a home or helping to balance the books when finances are stretched, you do need to be aware of the gifting allowances if you think there’s any chance that your own estate would be subject to Inheritance Tax when you die.

Gifts you make within seven years of your death are added back in to your estate, when it comes to calculating Inheritance Tax (IHT). However, gifts that fall under the gifting allowance will be immediately outside of your estate, and, therefore, no IHT is due.

Each tax year, you can gift up to £3,000, which will immediately be exempt from IHT. There are other exempted gifts where this applies too, including giving up to £5,000 to your child when they get married and gifting small amounts up to £250. There are some proposals to simplify these gifting allowances, which we welcome, to make them simpler, and more generous.

Gifts that come from surplus income are also immediate exempt from IHT. This means that normal presents you give regularly are free from IHT, as are regular payments into savings accounts for family members. However, you must be able to maintain your standard of living after making the gifts.

We find that many people are aware of gift allowances and the ‘seven year rule’ but not whether IHT will apply to them when they pass away. That’s important to know. There’s no point in doing complicated planning, or worrying about limiting your gifts to family if your estate is under the IHT threshold anyway.

Keeping a record of the gifts you’ve given can be useful for ensuring that avoidable IHT is not due. This is particularly important if you’re taking advantage of some of the more complicated exempted gifts, such as payments to help with the cost of living, for example paying for a grandchild’s education.

If you’re worried about IHT, making use of the gifting allowance may be one way to reduce the amount that your loved ones will need to pay. Speak with us today to understand how you can gift effectively with your goals and personal circumstances in mind.


Of course, your other option here is to leave your wealth as an inheritance. With much of your wealth likely to be tied up in property or other assets you want to leave, inheritance will probably form part of your plan even if you’re gifting now.

The first step to take when planning inheritance is to write a will. A will should clearly specify who you want to inherit your wealth. Without a will, your estate will be distributed according to the rules of intestacy, which may not align with your wishes.

Another key consideration here is IHT. It’s is only due if your entire estate is valued at more than £325,000.

If you’re gifting to children or grandchildren and leaving your main home to them, your allowance can increase. This is known as the residence nil-rate band. This allowance is currently £125,000 but will reach £175,000 in 2020. As a result, the value of your estate that is exempt from IHT can rise significantly.

You can also transfer any unused threshold to your partner if you’re married or in a civil partnership. This means your children and grandchildren could inherit up to £1 million from 2020 without your estate being liable for any IHT. There have been some interesting debates about whether siblings should be allowed to enter into a civil partnership to benefit from these exemptions, but the rules are unlikely to change any time soon.

The value of your estate that falls outside of threshold, will face an IHT charge of 40%. This can be reduced to 36% on some assets if you leave 10% or more of your estate to charity in your will.

Something to be particularly mindful of is how your life insurance policies are structured. If they will pay out into your estate when you die, they could increase your exposure to IHT. The good news is that this is usually avoidable with some simple planning.

If your estate will be liable for IHT or if you have life insurance policies that will pay out to you or your partner, there are steps you can take to reduce it, maximising how much your loved ones receive. This is an area we can help you with. From using a trust to taking out insurance, we’ll help you find the steps that are right for you.

Contact us today to discuss how you can effectively support the next generation and pass on your wealth.