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Inheritance Tax Solutions - Gifting out of Income

Gifting out of Income

How can I save Inheritance Tax using my surplus annual income and pass the funds to my grandchildren so they can’t have access until age 55, but keep all my assets.

Client Circumstances

  • Mr Jack is a widower aged 68
  • His estate is £1.2m
  • He does not wish to gift any capital
  • Has surplus income of £12,000 pa
  • Has 2 sons with 3 grandchildren
  • Grandchildren are aged 6, 8 and 10
  • He would like to set something up for grandchildren for their future

Recommended Solutions

  • Complete IHT 403 as permanent record
  • Using gifts out of surplus income
  • To set up Stakeholder Pension plans for each of his 3 grandchildren
  • Contribution of £2,880 net per annum for each grandchild

Benefits from advice given

  • Helps to reduce future growth in Mr Jack’s estate
  • Gifts are exempt for IHT purposes immediately (no 7-year rule)
  • Grandchildren will not be able to touch plans until they are age 55
  • Can stop contribution at any time if income is not sufficient
  • Grandchildren will be able to contribute to plans at later age.
  • Provide benefits for grandchildren when they take retirement.
  • Total pension contributions over 10 years of £86,400
  • IHT saving (without growth) of £34,560, so net cost effectively £51,840
  • Total IHT saving at 10 years of £57,054
  • Approximate future total pension values after 10 years £142,632 (assuming 5% growth)

Gifting out of Income

gifting-out-of-income-chart

NB The above are examples only.
They assume no future growth and ignore product charges.

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Future Servicing

We will look to carry out a regular review of your circumstances, objectives, needs and portfolio performance to ensure all arrangements continue to be suitable and advise of any changes that may be appropriate.

This example is for illustrative purposes only, based on current legislation and tax allowances. Tax rules and regulations are subject to change.

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