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Here are the implications of paying off your grandaughter's student loan. It would be viewed as a gift.
Personal tax implication
Any person who receives a gift receives it as tax free, i.e. there is no tax on gifts in the hands of the recipient.
Inheritance tax implication
Depending on the amount involved, the gift can be covered under inheritance tax exemptions and reliefs.
You can give up to £3,000 away each year, either as a single gift or as several gifts adding up to that amount - you can also use your unused allowance from the previous year but you use the current year's allowance first. If you have not used this allowance in either this year of the previous tax year, then you can gift up to £6,000 and the gift would be covered under annual exemption.
If you have exhausted your annual exemption allowance then the gift will be regarded as a potentially exempt transfer,, whereby if you survive for seven years after making a gift to someone, the gift is generally exempt from Inheritance Tax, no matter what the value.
More information on Inheritance tax exemptions and reliefs can be found here
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