I’m giving my grandson £70,000 – will this affect his working tax credit?

In our weekly series, readers can email any questions about their finances to be answered by our expert, Rosie Hooper. Rosie is a chartered financial planner at Quilter Cheviot and has worked in financial services for 25 years. If you have a question for her, email us at money@inews.co.uk. Question: I would like to gift my grandson £70,000 for a deposit on his first home. Currently he is the sole earner in his family and has two young children but next year he will be eligible for 30 hours of free childcare when his wife goes back to work. His income is £45,000 a year. Would the gift affect any working tax credit he receives? Answer: Where you are is a wonderful position to be in, and there can be real benefits to helping the next generation during your lifetime rather than waiting until your estate is passed on. Shorts Not only do you get the pleasure of seeing your grandson and his family enjoy the money when they need it most but helping them onto the property ladder now could make a genuinely life-changing difference to their long-term financial security. There can also be estate-planning advantages. With some pension wealth due to become subject to inheritance tax from April 2027, more families may find themselves facing an inheritance tax bill in future than do today. Giving away money that you do not need can be an effective way of reducing the size of your taxable estate. In many cases, provided you survive for seven years after making the gift, the amount given away will fall outside your estate for inheritance tax purposes. As for your grandson, the good news is that a gift of around £70,000 towards a house deposit should not affect his entitlement to the 30 hours of free childcare when his wife returns to work. Eligibility for the scheme is based on parents’ earnings rather than their savings or the size of their house deposit. With earnings of around £45,000 a year, he is comfortably below the £100,000 adjusted net income limit that applies to the scheme. You mention working tax credit, but based on the circumstances you describe, it seems unlikely this is something your grandson would be receiving. The tax credits system has now largely been replaced by universal credit, and support is increasingly focused on households with lower incomes. While large amounts of savings can affect entitlement to means-tested benefits, your grandson’s earnings mean this is unlikely to be a practical concern. The gift is therefore unlikely to reduce any support that he would otherwise receive and is far more likely to strengthen the family’s financial position by helping them move from renting into home ownership. The bigger consideration is likely to be the inheritance tax position for you rather than the benefits position for him. Everyone can give away up to £3,000 each tax year under the annual gifting exemption. If you did not use last year’s allowance, you can generally carry that forward for one year, meaning up to £6,000 could be covered immediately. The remaining amount would normally be treated as a potentially exempt transfer. In simple terms, if you survive for seven years after making the gift, it will generally fall outside your estate for inheritance tax purposes. There may also be further advantages if some or all of the gift can be shown to come from surplus income rather than capital, although specific conditions apply and good records are essential. Before making any significant gift, make sure you are comfortable that it will not affect your own financial security. A house deposit can be one of the most valuable gifts a grandparent can make, but it should always come from money you can genuinely afford to part with. Overall, this sounds like a straightforward and generous way to help your grandson and his young family at a stage of life when financial pressures are often at their highest. You would be giving him an opportunity that might otherwise take years to achieve on his own, while potentially reducing the inheritance tax burden on your estate and ensuring that more of your wealth ends up benefiting your loved ones rather than the taxman.