Adding to a SIPP to avoid IHT

justhadenough24

Would it be an idea to add to my SIPP to potentially reduce tax on transfer to beneficiaries. I am not working with an earned income and over 75. I have an untouched SIPP of some value and am thinking to make my grandchildren the beneficiaries on the basis that they will either be non-tax payers or minimum rate when they come to take an income from the SIPP. So any transfer of value in a SIPP would be taxed at a rate below IHT rate. I realise that I would not get any tax benefit from adding to the existing SIPP but could add up to a limit (or would it be unlimited) to remove cash from my estate. Are there any restrictions to doing this? It would seem that if I don't see a need for the SIPP then I could add a significant sum all at once or over a number of years and potentially have it taxed in the hands of the grandchildren at a lower rate than IHT (unless they hit the big time and become additional rate income tax payers!).

Inbetweeners

You are assuming the budget won't remove the current exemption from estate for IHT?

Keep_pedalling

What is your marital status and net worth (excluding SIPP)?

justhadenough24

Yes, assuming current rules - married (and will stay that way) - NW £3.5M

Jeremy535897

Your problem is that, without any earnings, normally only £3,600 gross a year can be added to your SIPP and qualify for tax relief. Unfortunately, as you are over 75, the additions won't qualify for tax relief at all, and your SIPP may not even accept additions to it. Anything you draw down beyond the lump sum will be taxable on you. Other beneficiaries will only be able to benefit from the SIPP after your death, and income tax will be charged on them in respect of any withdrawals. Your SIPP should already deal with who benefits after your death.

Grumpy_chap

The OP has not stated their age (other than over 75) or their health / fitness / mobility though, as this is not mentioned, I will assume good health.

Contributions to SIPP so that money can pass to grandchildren free from IHT does rather seem like the tax wail wagging the dog.

Based upon the OP's stated NW, I will assume that the OP has a comfortable level of retirement income.
This opens up the possibility of gifts out of income as a tool to avoid IHT.

The OP can also make some fairly generous capital gifts without risking personal hardship or inadequate funds to met future care needs and such like.  Such gifts will taper with regard to IHT over 7 years.  In any event, gifts can never result in an increase IHT liability.  Gifting directly, or adding to a SIPP to be passed on, have the same impact on the OP's own finances.

I will assume the OP has used the available annual allowance exemptions.

Again, this is all making decisions driven by the tax tail...

The best thing for the OP to do would be to life life to the fullest and spend money enjoying quality family time - this can be some fantastic experiences.  Or just pay for things the grandchildren need for their stage in life.  Obviously, the age of the grandchildren may have a bearing.  If they are young, the best experience may be very cheap - a sheet of bubble wrap or similar.  If they are older, driving lessons or such like might be very well received.

justhadenough24

Thanks for the feedback - I think I'll just do as suggested and spend the money - including on the grandchildren - their parents have now decided to become tax exiles and are emigrating to escape so we'll be spending a lot on travel to the Far East to see them.

Jeremy535897

justhadenough24 said:

Thanks for the feedback - I think I'll just do as suggested and spend the money - including on the grandchildren - their parents have now decided to become tax exiles and are emigrating to escape so we'll be spending a lot on travel to the Far East to see them.

It may be worthwhile setting up arrangements to make regular gifts out of income, which are exempt for inheritance tax purposes if done properly, as you have the facility to control the income you receive.
See https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14231 et seq.