At a time when families are struggling to make ends meet, responsible parents and grandparents still need to think about the inheritance they will leave behind for their children or grandchildren, who may rely upon that funding to help them through a difficult financial phase in the future.
The worry is of course, that most of the inheritance you leave will be swallowed up by Inheritance Tax, but there are ways of not necessarily eliminating this tax altogether but certainly reducing the liability on your estate.
Currently, you can leave an estate worth up to £325,000 (including the value of your property, without any Inheritance Tax falling due. Remaining assets above this value are then taxed at 40%.
It often makes sense then, to try and reduce the value of your estate before you die and this is legally possible through the process of gifting to a child’s pension fund or SIPP.
You are allowed to make a gift to a child’s pension fund or SIPP of up to £2,880 each year, which can be spread in monthly payments throughout that year – a gift which is exempt from Inheritance Tax and which will help them out financially in the future, should they need it. Not only that, as child pension funds and SIPPs are liable to receive tax relief, this amount would be increased to £3,600 providing a valuable nest egg.