Adviser > News > August 2009 > Reduce IHT Liability With Children's Pensions
Reduce IHT Liability With Children's Pensions
Did you know that paying into a pension for a child or grandchild is a way to reduce Inheritance Tax (IHT) liability and benefit from tax relief?
Regular contributions to a pension may be offset against normal expenditure. Alternatively, each parent or grandparent can use their annual personal exemption to make contributions of up to £3,600 a year (including tax relief), free of IHT.
So, what would your clients prefer; a tax charge of normally 40% or 20% tax relief?
What are the benefits?
- The (grand)parent reduces IHT liability on their estate
- They can help cater for their (grand)children’s financial future
- Funds cannot be frittered away by the (grand)child
- Contributions receive income tax relief
- Can help build up a substantial retirement fund for the (grand)child, benefiting from potential fund growth for a longer period.
Using a pension to reduce IHT liability may not be suitable in all cases.
How Scottish Life's Pension Portfolio can help
About Inheritance Tax
- IHT is payable on death where the deceased’s estate is valued at more than £325,000 (2012/13 tax year)1
- Tax charge of normally 40% on amount in excess of £325,000
- IHT may be payable on gifts made within 7 years of death
- Annual IHT exemption: £3,000
- Any gifts that form part of normal expenditure are exempt from IHT, for example regular contributions to a pension plan.
1 Except where there is a surviving spouse/civil partner in which case the estate passes to them without IHT being due.
We've brought together all of our best ideas about retirement planning into our Pension Portfolio to provide a complete lifetime solution:
- No minimum age at entry
- Minimum investment: £100pm/£1,200pa or £2,500 single contribution
- Base annual management charge of just 1%
- Tiered discount of between 0.1% and 0.65% based on fund size – reducing the management charge to as little as 0.35%
- Up to 75% Financial Adviser’s Fee (FAF) available on regular contributions and up to 7.5% FAF available on single contributions
- Fund Based Renewal Commission of up to 1% of the fund per annum (can be combined with FAF).
Next steps
For clients who want to reduce IHT liability on death and help provide for their (grand)children’s financial future this is a great opportunity. You can also demonstrate the value of your advice and generate additional revenue for your business.
If you’d like more information on Scottish Life’s Pension Portfolio and how we can help:
- Please contact your usual representative
- Find out more about Pension Portfolio at www.scottishlife.co.uk/pensionportfolio
References to taxation are based on our understanding of the current law and practice and may be affected by changes in legislation or by an individual’s particular circumstances. Specialist tax and legal advice should be provided before any investment is made or tax strategy implemented.
Last update 02 April 2012
65W0303
For professional advisers only
