Setting up SIPP for adult child

Early_Retire_Free

As I am a retiree and my only income is from pensions, I have no options of reducing tax (other than perhaps buying some VCT's but that's another thread...).

I am assuming that I can make a pension contribution to an adult child's pension, probably by setting up a new SIPP.

Any reason why I couldn't do that?

If my maths are right and I pay in £800, the government (under current rules) would gross that up to £1,000.  In addition, as my adult child is a higher rate taxpayer, they could then claim higher rate tax relief which would return an additional £200.  So in summary I could gift £800 and get £400 from the government.

Are my maths rights?

I also assume the amount gifted would be exempt from inheritance tax (provided I survive for 7 years on any amounts over £3,000)

Dazed_and_C0nfused

Early_Retire_Free said:

As I am a retiree and my only income is from pensions, I have no options of reducing tax (other than perhaps buying some VCT's but that's another thread...).

I am assuming that I can make a pension contribution to an adult child's pension, probably by setting up a new SIPP.

Any reason why I couldn't do that?

If my maths are right and I pay in £800, the government (under current rules) would gross that up to £1,000.  In addition, as my adult child is a higher rate taxpayer, they could then claim higher rate tax relief which would return an additional £200.  So in summary I could gift £800 and get £400 from the government.

Are my maths rights?

I also assume the amount gifted would be exempt from inheritance tax (provided I survive for 7 years on any amounts over £3,000)

Are you yourself liable to higher rate tax?

Even if not then the ever popular £2,880/£3,600 route is still a winner for you personally. It wouldn't reduce your tax liability but you would be £180 better off, an easy 6.25% return on your initial outlay.

As to your original question, no you couldn't gift £800 and get £400 from the the government.

You could gift £800 and your adult child would get £200 plus any personal tax saving. Which might be an additional £200. Or more than £200. Or less than £200. Depends on their overall tax situation.

dunstonh

I am assuming that I can make a pension contribution to an adult child's pension, probably by setting up a new SIPP.
Any reason why I couldn't do that?

It is possible but not all providers are geared for third party payments.   Another solution is to pay the adult child the money and they pay it in to the pension.  That avoids third party payment issues.

<br>If my maths are right and I pay in £800, the government (under current rules) would gross that up to £1,000.&nbsp; In addition, as my adult child is a higher rate taxpayer, they could then claim higher rate tax relief which would return an additional £200.&nbsp; So in summary I could gift £800 and get £400 from the government.

Technically, you are paying £1000 into the pension and tax relief reduces the contribution to £800.   Your child then claims the extra £200 higher rate relief.    Its the same end result but relief is a reduction and not a bonus.   

Yes, the pension is taxed under the NI number of the pension holder.  So, if they are a higher rate taxpayer, they get the higher rate relief.  Not you.

I also assume the amount gifted would be exempt from inheritance tax (provided I survive for 7 years on any amounts over £3,000)<br>

If its under the £3k or gifted from income, then yes.

Early_Retire_Free

Thank you both and yes, I mispoke - I meant that my child (and thereby we as a family) would be £400 better off (than by us simply gifting £800).

Early_Retire_Free

Even if not then the ever popular £2,880/£3,600 route is still a winner for you personally. It wouldn't reduce your tax liability but you would be £180 better off, an easy 6.25% return on your initial outlay.

Thanks and yes we are currently doing this.