Home / Trusts and grandchildren – smart planning for the next generation
12th June 2026
Saadia Javed, Senior Associate
Being a grandparent is a privilege enjoyed by many. It offers a unique opportunity to help shape future generations – often in a rather different way from how grandparents raised their own children. We can leave that debate for another time. For now, it is worth considering a tax-efficient way of providing for your grandchildren: trusts. And no, “trust” is not a bad word – I promise.
If set up and used properly, trusts can provide a way of making provision for grandchildren in a controlled and tax effective manner. The trust fund can be used for the benefit of the grandchildren whether this is:
One of the main reasons why trusts set up by grandparents work so efficiently is because when a grandparent sets up a trust for a minor grandchild, any income the trust fund generates can be applied for the grandchild without the same being taxed on the parent (even though the grandchild is a minor). Due to anti-avoidance legislation this is not the case when a parent sets up a trust for their child – as the income in this situation is assessed on the parent for as long as the child is under 18.
A trust set up by a grandparent consequently allows each grandchild to receive income up to their personal income tax allowance free of tax. This is currently £12,570. Any income in excess of the personal allowance will then be taxed at a rate 20% (soon to be 22% for savings income from 6 April 2027). To maximise efficiency the trust can be structured to allow for the income to be assessed on the grandchild rather than by the trustees first and then the grandchild.
A trust can be set up using a variety of different assets, this may comprise: cash, a buy to let property producing rental income, an investment bond or an investment portfolio to name a few. One of the main attractions of using trusts is the ability to defer the capital gains tax charge triggered by the gift of the asset into trust, making this an option for those buy to let properties which carry a substantial gain.
There are of course limitations to using a trust namely that the value of the gift into trust is restricted to an individual’s nil rate band i.e. £325,000. This limit can be exceed if the asset to be gifted has the benefit of a relief i.e. Business or Agricultural Relief. There are also trust tax and compliance considerations to bear in mind, but usually these are outweighed by the benefits of setting up a trust for grandchildren.
If you are a grandparent or know a grandparent who can help shape the future of their grandchildren then this is something worth exploring. Get in touch with our tax team at [email protected] if you would like more assistance.