How do I gift to a grandchild?

Q: How do I gift to a grandchild?

A: It’s a question more grandparents are likely to be asking. Changes to the inheritance tax (IHT) treatment of pensions mean that, from 6 April 2027, most unused pension funds and pension death benefits will be brought into an estate for IHT purposes. That may prompt more people to think about passing some of their wealth on during their lifetime instead.

There’s quite a lot to cover, so I’ll break it down into chunks. I’m also sharing some useful links at the end of the article - so do take a look at those as well.

First, how much can you gift?

There isn’t one single gifting allowance. Instead, there are a few different rules and exemptions that can come into play.

Most of the gifting rules below aren’t dependent on you being a grandparent at all. And if you’re part of a couple, remember that you each have your own allowances.

And a grandparent doesn’t necessarily have to be a biological grandparent. For the wedding or civil partnership exemption, the rules can also cover stepfamily relationships. So, a step-grandparent or step-great-grandparent may well be able to gift, depending on the family relationship.

Can I pay into my grandchild’s Junior ISA or Junior SIPP?

Yes.

Grandparents - and other family members and friends - can pay into both a Junior ISA and Junior SIPP once the account has been opened by a parent or legal guardian.

With a Junior ISA, up to £9,000 can be paid in during the 2026/27 tax year, across everyone contributing to the child’s Junior ISAs. Any investment growth or income within the account is tax-free. The money belongs to the child and can’t normally be withdrawn until they turn 18.

A Junior SIPP takes a much longer-term approach. For most children with no earnings, up to £2,880 can normally be paid in each tax year and receive basic-rate pension tax relief. The government adds another £720, taking the total to £3,600.

Put another way, every £80 contributed becomes £100.

The child takes control of the pension at 18 but won’t normally be able to access the money until the normal minimum pension age - currently 55 and rising to 57 from 6 April 2028. And given how far away retirement may be for a young child, that minimum age could change again before they get there.

For a lot of people, the choice may partly come down to when you want them to benefit. A Junior ISA could help with university, travel, a first home or whatever early adulthood brings. A Junior SIPP is very definitely a gift for their much older self.

Or, of course, it’s possible use a mixture of the two. But only a parent or guardian can open a Junior ISA or Junior SIPP on behalf of their child.

One important distinction to note here… the Junior ISA and Junior SIPP limits are account contribution limits, not additional IHT gifting allowances. So, the fact that £9,000 can be paid into a Junior ISA doesn’t mean you personally have a £9,000 IHT-free gifting allowance. You’d still need to consider the gifting rules above and which exemption, if any, applies.

• Learn more about our Junior ISA
• Learn more about our Junior SIPP

Keep a record of what you give

This is an easy bit to overlook, but a very useful one.

The person who eventually deals with your estate may need to work out what gifts you made in the seven years before your death. HMRC recommends keeping a record of what you gave and who you gave it to, how much it was worth and when you gave it.

It can also be helpful to note which exemption you thought applied.

And if you’re making regular gifts from income, keeping evidence of your income and normal expenditure can be particularly useful. It may be necessary to show that the gifts came from surplus income and didn’t affect your usual standard of living.

It doesn’t need to be complicated. A simple spreadsheet or document - kept somewhere your executor or family knows about - could save your loved ones a fair amount of detective work later.

Got a burning question you want to ask? Why not drop us a line. Click here to ask your question.

• Read: What are the ‘rules’ for setting up and paying into Junior SIPPs?
• Watch: Inheritance tax - What people get wrong about the 7-year rule
• Read: IHT gifting allowances: 8 key questions answered

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). Junior ISAs are long term tax-efficient savings accounts for children. Withdrawals will not be possible until the child reaches age 18. A Junior ISA is only available to children under the age of 18 who are resident in the UK.  It is not possible to hold both a Junior ISA and a Child Trust Fund (CTF).  If your child was born between 1 September 2002 and 2 January 2011 the Government would have automatically opened a CTF on your child’s behalf.  If your child holds a CTF they can transfer the investment into a Junior ISA.  Please note that Fidelity does not allow for CTF transfers into a Junior ISA.  Parents or guardians can open the Junior ISA and manage the account but the money belongs to the child and the investment is locked away until the child reaches 18 years old. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.