Q: Can I gift £50,000 worth of Premium Bonds to my young grandchildren, to reduce what will have to be paid in Inheritance Tax (IHT)?
A: You can buy Premium Bonds for grandchildren under 16, but they must be held in the child’s name through a parent/legal guardian. Once they turn 16, they can manage the account themselves.
Whilst the prizes from Premium Bonds are tax-free, the initial gifting of the £50,000 does not remove the money from your estate immediately. Unless the gift qualifies for exemptions (e.g. £3,000 annual allowance or gifts from surplus income), it remains a Potentially Exempt Transfer (PET). PETs only become IHT-free if you survive seven years after making the gift.