How to avoid paying tax on an inheritance

Si_Clist

Thank you to one and all for your help with this, which has clarified our situation and saved us unnecessary worry 

where_are_we

Another way of avoiding tax, if your wife is aged between 55 and 75, and has no earned income, is for her to contribute £2880 each tax year to a SIPP. This will be grossed up by HMRC 6 or 7 weeks later to £3600. This gives her a £720 gain each tax year, and she can withdraw most of the £3600 (leave some in the SIPP to keep it running - we used HL who many years ago required £50 minimum) tax free if her total pension income is less than the personal tax allowance £12570. Look at the "pensions benefits and retirement" part of MSE forum and type in search engine £2880 for further details. If your state pension is less than £12570 then you could also benefit from this strategy.

Dazed_and_C0nfused

where_are_we said:

Another way of avoiding tax, if your wife is aged between 55 and 75, and has no earned income, is for her to contribute £2880 each tax year to a SIPP. This will be grossed up by HMRC 6 or 7 weeks later to £3600. This gives her a £720 gain each tax year, and she can withdraw most of the £3600 (leave some in the SIPP to keep it running - we used HL who many years ago required £50 minimum) tax free if her total pension income is less than the personal tax allowance £12570. Look at the "pensions benefits and retirement" part of MSE forum and type in search engine £2880 for further details. If your state pension is less than £12570 then you could also benefit from this strategy.

Basic rate payers can also benefit, just it is usually limited to £180/year rather than the £720 some people can get.

where_are_we

Yes. For basic rate tax payers a just over 6% guaranteed return each year. Good for those exceeding their £1000 personal savings allowance because the £180/year gain is not an interest payment and does not add to your annual savings interest total.

poolboy

Thanks the billy basic sipp is even better when recycling money, ie, pay in, get the tax uplift, then withdraw and repeat in year 2.  I just keep adding as bought investment trusts within the sipp so enjoy the tax free income.

Aretnap

where_are_we said:

Yes. For basic rate tax payers a just over 6% guaranteed return each year. Good for those exceeding their £1000 personal savings allowance because the £180/year gain is not an interest payment and does not add to your annual savings interest total.

Nothing to do with the personal savings allowance as the 180/year is additional to any interest you can earn on your £2880, not an alternative to interest. You can withdraw from the pension straight away and put it back somewhere it will earn interest - there's no need to leave it in the pension for a while year to get your 6% return. If you use a SIPP provider that adds the 25% top up immediately you don't even need to wait 6-7 weeks for HMRC to see your 6% return.