Martin Lewis shares tip for grandparents who can save thousands on inheritance taxes

27 June 2024, 14:07

Martin Lewis, CEO of The Money Saving Expert, reveals how grandparents can save thousands on unnecessary inheritance taxes when gifting money to their grandkids.

Martin Lewis has revealed an important tip when it comes to gifting money to grandkids that will save grandparents from paying unnecessary inheritance taxes to the government.

Inheritance Tax is the tax on property, money and possessions of an estate after its owner dies when the value is above £325,000.

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There are ways to avoid paying the tax if the estate is left to a spouse, civil partner or charity, and the threshold increases to £500,000 if it’s left to children or grandchildren, however, the tax still applies to monetary gifts gifted up to seven years before death.

Martin is a journalist, founder and CEO of The Money Saving Expert and host of two podcasts, The Martin Lewis Podcast as well as Not The Martin Lewis Podcast and The Martin Lewis Money Show on ITV.

In the last week of June, a caller inquired on the latter podcast with a specific question about early monetary gifting from their grandparents.

The caller asked, "My grandparents wish to gift me part of my inheritance early. I understand that they can give £3,000 each tax-free. But since this is the first time, can they carry over last year's allowance?".

Tax consultant Kari Mellon confirmed to the caller that, "Yes, £6,000 in the first year and then £3,000 for each year afterwards, "was the set rate to avoid inheritance tax on any of the money.

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However, Martin then revealed that there may be an alternative method that would allow a grandparent to give more money to their grandkids whilst still avoiding the tax.

"They may be able to give you more if they have surplus income that they could give away," he added during the conversation.

Financial expert, tax lecturer and Principal at Rebecca Benneyworth & Co, Rebecca Benneyworth provided her expertise in the field, revealed, "Providing you make regular gifts from your surplus income which do not affect your standard of living, those gifts are immediately free from inheritance tax."

She clarified what could count as surplus income, "If you take in all of your income that you receive in a year, take off all of your expenses including a new car or a holiday and your tax liability. If you have a surplus left over, then that's the maximum that you could give away."

She went on to advise, "There was a case a few years ago where someone died after only making one or two gifts out of surplus income, but the executors were able to prove that the intention was there to make it a very regular pattern, so they were successful in their claim.”

“But if you've made them three or four times a year for a number of years, you've got a really good pattern there."

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