Give to your children not the taxman
Alliance Trust Savings, one of the country's leading SIPP providers, has shown that individuals can reduce their inheritance tax liability while at the same time provide for the financial future of their children or grandchildren.
Currently an individual can pass on an estate worth up to £325,000 without any inheritance tax applying. If an estate - including any assets held in trust and gifts made within seven years of death - is more than the threshold, inheritance tax will be due at 40% on the amount over the current £325,000 limit. Despite the recent slowdown in the housing market many properties in the UK are valued in excess of £325,000 meaning many individuals need to plan ahead to minimise their family's inheritance tax liability.
Many people do not realise that they could mitigate their inheritance tax liability by making gifts to a child's pension. In addition, contributions are boosted by tax relief. A contribution of £2,880 to a child or grandchild's pension (including SIPPs) will see HMRC top this up to £3,600.
Gifts made to a child's pension have the potential to qualify for a number of inheritance tax exemptions:
Gifts of up to £3,000 each tax year are exempt from inheritance tax - making a gift of £2,880 (the maximum net pension contribution) to a child or grandchild's pension an ideal way of making use of this exemption
Gifts of up to £250 to an individual in a tax year can qualify as inheritance tax exempt payments
Regular gifts made from an individual's net income can qualify as inheritance tax exempt payments
other payments to the child for investment in their pension will be treated as potentially exempt transfers and will therefore be exempt from inheritance tax if the donor survives for seven years
Steve Latto, head of pensions at Alliance Trust Savings commented: "People are increasingly looking at ways to secure the financial future of their children or grandchildren while at the same time trying to minimise the impact of inheritance tax on their estate. Individuals may be unaware that both objectives can be met by making contributions into a Child SIPP. This also has the added benefit that contributions will be further boosted by tax relief.
"The Alliance Trust Savings Child SIPP offers a wide choice of investments and an annual charge of only £50 + VAT. Also, our unique rebate structure available on funds from our i.nvest platform means that we rebate all commissions received from fund providers back to the SIPP which helps individuals boost the value of their pension fund."