Can we gift to our grandchildren IHT-free?

Q

“My wife and I each give our son £3,000 a year under the inheritance tax (IHT) gifting rules. Can we also put money into a Junior Isa (Jisa) for the grandchildren? We have three grandchildren and I’m thinking of putting £6,000 a year in total into Jisas. That would be £12,000 between my wife and I over the year.”

From: DH/Leicester

A

• Invest with ii: ISAs for Grandchildren | Inheriting an ISA | Can I Transfer an ISA to Someone Else?

I assume you have each been using your annual allowance in previous years as you say that you each give your son £3,000 a year. So you would not have any unused allowance to bring forward. You can certainly make the additional gifts, but these would be classed as a Potentially Exempt Transfer (PET for short) for inheritance tax purposes. If you died within seven years of each annual gift, it would still be counted as part of your estate and may be liable to IHT depending on the size of your remaining estate. Your exempt allowance or nil-rate band (currently £325,000) would apply first to the PET.

For instance, if you had made three years of gifts – £18,000 – and then died, the nil-rate band available against your other assets would be £307,000. That’s £325,000 minus £18,000.

There is another possibility. If the proposed gifts are to be made from surplus income, then they would be exempt from IHT. The conditions are as follows: the gifts are made from income, not capital; there must be the intention to make the gifts regularly although they don’t have to be the same amount each year; and the gifts must not affect your ability to maintain your normal standard of living.

As for putting money into a Jisa, yes, that should be possible. Your children, as the parents, would have to set up the Jisas, but once up and running you could pay money in.

Just remember that the annual Jisa allowance is £4,368, so you would need to check with the parents to make sure your deposit won’t take them over the limit.