Inheritance Tax Solutions - 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.
- 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
- 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
NB The above are examples only.
They assume no future growth and ignore product charges.
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This example is for illustrative purposes only, based on current legislation and tax allowances. Tax rules and regulations are subject to change.