Help with ideas to distribute a small early inheritance to family

www.gov.uk/guidance/work-out-inheritance-tax-due-on-gifts
" Find out which gifts count towards the value of the estate, how to value them and work out how much Inheritance Tax may be due. "

"Work out which gifts to include by following these steps:

List in date order all of the gifts the person who died made in the last 7 years that are not exempt, starting with the oldest first.

Keep a running total of their values.

Check your list to see where the running total goes over the £325,000 threshold. You’ll pay tax on:
the part of any gift that took the running total over the threshold
any gifts made after the threshold"

The tax implications of dying less than seven years after making a gift don't happen suddenly, they change gradually. If you survive for six years, the tax the recipient has to pay on it is a lot less than if you died one year after, and so on.

Time Between Gift and Death. . . . . IHT Rate on the Gift
Less than 3 years. . . . . . . . . . . . . . . . . . 40%
3 to 4 years. . . . . . . . . . . . . . . . . . . . . . . 32%
4 to 5 years. . . . . . . . . . . . . . . . . . . . . . . 24%
5 to 6 years. . . . . . . . . . . . . . . . . . . . . . . 16%
6 to 7 years. . . . . . . . . . . . . . . . . . . . . . . .8%
7 years or more . . . . . . . . . . . . . . . . . . . .0% (Tax-free)

I also agree with giving money but not to attach strings to it. I take the view that if it's a gift, it's a gift! Slightly different if you are giving money way to help buy a house, get driving lessons or buy a first car, that's generosity with a distinct immediate purpose but tbh starting a pension for grandchildren is a step too far for me.

We don't know anything about your grandchildren, but I agree with imposing no conditions. And whatever their ages, just accept their decisions on how to spend it.

Our DD was only 19 when she inherited, her siblings were older, and we were terrified it would all be spent on handbags! She decided to buy a flat in London to get on the property ladder and has wisely moved upwards with her family to a large house in the country in the last 20 years. Immediate cash was King in her case, the other children were equally discerning with the amount.

Enjoy your holiday together, and spend, spend, spend!

Keep records. If you should die before 7 years is out, all the money given out of capital will be assessed for IHT, even if you live 6 years and 11 months! Tapering only takes place if the amount given wipes out the £325K allowance. This is commonly misunderstood. Unless otherwise stated in your will, it is the recipients obligation to pay any outstanding IHT. It shouldn't stop you giving money to your family but it is sensible to understand the implications especially if you have life threatening illness or are getting on in years. Money can be passed on between spouses without attracting IHT until the surviving spouse dies. If you are giving away money out of income, don't give it out of a joint account unless both spouses can prove they have disposable income.

Please don't put conditions on it.
My sister-in-law was told "do not fritter this away on your husband" and her sister "don't spend this on clothes". They were told to instead "invest it for the future".

It was a substantial sum but it was not given with grace - they were young but both married with their own homes.
Neither have forgotten. And obviously neither have I!

A gift is a gift. Just give it with love if you can afford to.

We had an inheritance from my parents when they died.
I "frittered away" quite a chunk of it - on keeping us solvent when my husband was really ill and we had five young children.

I know it was the best use of it.

The "don't spend it on your husband" immediately bailed herself and husband out - it gave them just a month or two breather from losing their home and livlihood when mortgage rates rose just as her husband's business went into free-fall.

We cannot imagine or their futures or know what will come to pass.

So perhaps it would be possible to get them some bonds that would mature in a couple of years. For now perhaps a £100 premium bond each, ?

I wouldn't go for £100 of Premium bonds, the chance of any return on them in the form of winnings is minute and the principle itself would lose value because of inflation. If it's going to be bonds I'd make them interest bearing bonds. The interest on them could help to preserve their real value.

Not knowing your grandchildrens ages, if there are any below aged 18, just be aware that at 18 they then can do what they want with it and you have no control. A friend had planned to do this, but knowing that one particular grandchild would be likely to spend it all, she chose to just keep 3 separate accounts for them all , but in her name and then gave them the money when I think they were either 21 or 25. That then helped them with moving or colleague or a house or whatever, and the grandchild she had been concerned with, actually was very grateful and said no doubt they would have spent it if they had had it earlier. So perhaps it would be possible to get them some bonds that would mature in a couple of years. For now perhaps a £100 premium bond each, ?

And keep records to prove it's gifts out of income if it is.

Being practical - make sure you are aware of the tax implications of gifting large sums - make sure you keep records of what you have given and when - and finally, make sure you live 7 years after you do it!