Intellectually promiscuous..
Part of our client on-boarding process is reviewing use of tax reliefs, allowances and exemptions. Believe it or not, there’s almost 1,000 but very few know them
Here’s our new planning for Fiona, who’s been very successful throughout life, has 4 children, and 11 grandchildren, never stops talking about them – apparently three of them can fly!
As a doting grandparent, Fiona can make pension contributions for each of them, as a way of kick-starting their retirement!
HMRC treat the contributions as if made by the child which means that, assuming the grandchild has no other earnings (some do!), then gross tax-relievable contributions of up to £3,600 can be made for each grandchild, every year. If grandchildren do have earnings, the maximum is 100% of those earnings (up to £60k)
Pension plans are set up by their legal guardians, and Fiona makes the contributions
Those contributions are gifts for Inheritance Tax (IHT) but, in Fiona’s case, she can demonstrate paying them doesn’t affect her standard of living (they’re out of income) so they’re all exempt, immediately
If exemptions hadn’t applied, and Fiona survives her contributions by 7 years, all those contributions may be IHT free, via the Potentially Exempt Transfer route
The annual IHT saving is £1,152* per grandchild, and there are 11 of ‘em! (that’s £12,672 every year)
One of Fiona’s grandchildren, little Lucas, is just 4. Assuming 5% annual net investment growth, and Fiona maintains her legacy planning, Lucas’s fund could become £81,567 by his 18th birthday
On the same basis, if Lucas never pays a penny more to his fund, it could be worth £633,089 by the time he’s 60
There’s loads more reliefs, allowances and exemptions. You can either speak to your accountant, who didn’t tell you about these, or to one of our Chartered Tax Advisors, who will, for , here
Toodle Pip
*IHT relief based on 40% of £2,880 (80% of £3,600 maximum gross annual pension, allowing for HMRC 20% contribution of £720)
