Gifting money into pensions ‘could help reduce inheritance tax’

Posted 05/10/2010

Parents and grandparents may want to look into wealth management, as it could help them to provide money for their offspring without being subjected to inheritance tax.

This is the advice of Alliance Trust Savings, which pointed out that individuals can currently pass on an estate up to £325,000 without being liable for the tax.

Anything above this will be taxed at 40 per cent.

However, if people make gifts to their child’s self-invested personal pension (SIPP), they could mitigate their family’s inheritance tax liability because gifts of up to £3,000 a year are exempt.

Steve Latto, head of pensions at Alliance Trust Savings, said: “Individuals may be unaware that 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.”

Earlier in 2010, Aviva found that parents are avoiding giving gifts in their Wills so that their children do not fall victim to large inheritance tax bills.

Instead, they are giving a ‘pre-inheritance’ to their offspring before their death.