Do grandchildren pay Inheritance Tax?

• Grandchildren don’t pay Inheritance Tax personally, it is paid by the estate before assets are distributed. 
• How much inheritance a grandchild receives is affected by how much tax the estate must pay, and there are ways to reduce this through gifting and making use of exemptions. 
• Estate Advances provide a simple way to cover an Inheritance Tax bill when the estate is short on cash.

Inheritance Tax (IHT) isn’t paid by grandchildren personally. The estate is required to cover the Inheritance Tax bill within six months of the date of death. 

A standard rate of 40% IHT is applied to the value of the estate that sits above the £325,000 tax-free threshold, also known as the nil rate band. 

As grandchildren are direct descendants, the estate can also benefit from an additional £150,000 tax-free allowance if property is passed down to them, pushing the threshold up to £500,000.

With the nil rate band frozen until 2030, more estates are finding themselves facing an Inheritance Tax bill. 

And when there’s no cash available in the estate to cover the cost of it before the six-month deadline, it can feel like a daunting challenge. 

Importantly, until Inheritance Tax is paid, no beneficiaries are able to receive any of their inheritance. 

At Provira, we help families dealing with complicated estates every day, providing them with a simple financial solution so they can move forward and focus on what really matters.

Our Estate Advance gives executors access to up to 50% of the net value of the estate within days, so they can pay Inheritance Tax quickly and unlock funds for the deceased’s family.

We only charge simple interest, not compound interest, don’t ask for early repayment fees if everything wraps up sooner than expected, and don’t require monthly repayments. 

Plus, as the loan is entirely secured against the estate there’s no personal liability, and we work directly with solicitors on your behalf, you have more time to focus on what matters.

One of our compassionate underwriters will be assigned to your case from start to finish so you feel supported every step of the way.

To start your loan application today, reach out to our team. We’re here to help.

What is the Inheritance Tax threshold?

The Inheritance Tax threshold, or nil rate band, currently sits at £325,000. The value of the estate that sits above this is taxed at 40%. That means anything below this band can be passed on entirely tax-free.

A person’s estate can include:

• Any owned property or land
• Financial assets such as a bank or savings accounts 
• Stocks and shares
• Personal possessions such as cars, jewellery or furniture

The fact that this threshold has been frozen until 2030 means that, with the rise in house prices and general assets, more estates will find themselves being pushed into the taxable range. 

There is also what’s known as the residence nil rate band. If the deceased chooses to pass their primary residence on to their direct descendants, grandchildren included, an additional £175,000 can be passed on tax-free. 

It’s also worth noting that tax-free allowances are applied per person. This can significantly benefit spouses as when one partner dies, it can be transferred to the surviving partner, leading to a much higher tax-free allowance for the estate.

This means where an individual had an allowance of £500,000 (the nil rate band and resident nil rate band combined), this will be passed to their spouse upon their death. 

The total threshold for the estate then becomes a sum of the two allowances, allowing up to £1 million to be passed on entirely tax-free.

So while grandchildren don’t pay Inheritance Tax directly, the size of what they inherit will depend on how much of the estate sits under these thresholds.

What can a grandchild inherit tax-free?

Quite a lot. Through a combination of exemptions, making use of thresholds and gifting, a grandchild could potentially inherit a large amount without paying a penny of tax. Here’s how a grandchild can inherit tax-free.

Making use of tax-free thresholds 

1. Nil rate band: £325,000 per person, £650,000 for a couple
2. Residence nil rate band: an additional £175,000 per person

If the estate value sits below £500,000 per grandparent, or £1 million combined, then grandchildren will be able to inherit the value tax-free.

Gifting

When planning an estate, gifting during your lifetime is one of the easiest ways reduce the value of your estate and therefore the amount that will be exposed to tax.

This all hinges on tactical use of the 7-year rule. If you give away part of your estate and survive for at least seven years after gifting it, it becomes exempt from IHT.

If the seven years isn’t met, IHT will need to be paid and this is calculated via “taper relief”, with the tax rate calculated according to how many years it has been since the gift was given.

This also applies to trusts, which sit outside the estate after seven years. 

There are also various other annual tax-free allowances to take advantage of: 

• £3000 gifting annual allowance per grandparent which can be given to one grandchild or multiple recipients
• £250 small gift allowance per person, per year
• Up to £2,500 wedding or civil partnership gift to a grandchild
• Gifts from surplus income as long as it doesn’t affect the gifter’s standard of living. This includes school fees
• £9,000 annual allowance when contributing to a Junior ISA. Growth is also free of income and capital gains tax

Agricultural & Business Property Relief 

Up to 100% relief can apply to qualifying agricultural or business assets, with a newly introduced relief cap of £2.5 million. For all the details on what qualifies and all the recent reforms, read our guide here.

It’s key to note that tax-free thresholds apply to the deceased, not those who are inheriting. So any exemptions or allowances are the result of how the estate has been structured. 

The more of the estate that’s protected by these exemptions and reliefs, the more the grandchildren end up receiving, unaffected by a hefty Inheritance Tax bill.

This is why it’s so important to carefully plan your estate and make sure you’re being as tax efficient as possible for future generations. 

Between the frozen threshold and reduction in relief, estates that previously passed down to grandchildren tax-free are now facing unexpected Inheritance Tax bills. 

And with the strict HMRC six-month deadline for paying it off, executors are often faced with the difficult challenge of finding the funds in time.

That’s where our Estate Advance comes in. 

Our loan gives executors access to up to 50% of the net value of the estate within days. 

Not only that but we keep costs low, only charging simple interest, not compound interest, don’t require monthly repayments and won’t charge a penny if everything wraps up sooner than expected. 

Plus, with no personal liability and a supportive member of our team on hand to walk you through the process, we’ll help take some of the emotional weight off your shoulders.

Reach out to our team today to get started on your loan. We’re here to help.

How can Provira help pay Inheritance Tax?

Even the most carefully-planned estates face an Inheritance Tax bill. And when it’s due within six months of the date of death, it can put unnecessary pressure on the executor to cover the cost in time.

While grandchildren won’t personally foot the bill for Inheritance Tax, they could suffer the repercussions of not being able to settle it before the six month deadline hits.

For estates where cash is tied up in property or other assets, our Estate Advance provides a lifeline, making sure the bill is paid in full and on time.

With our loan, you: 

• Are able to access up to 50% of the net value of the estate within days.
• Only pay simple interest, not compound interest, saving you money in the long run.
• Aren’t required to provide monthly repayments. We are simply repaid in full once the estate has been distributed.
• Don’t deal with HMRC payments or solicitor communication. We handle it on your behalf.
• Have a supportive team member dedicated to your case from start to finish.

To start your application, fill out our form today and we’ll be in touch very soon.