17th November 2022
Passing Wealth Down Through The Generations Available Options 3-4
Although most people wait until they reach working age to start a pension, a Junior Self-Invested Personal Pension (SIPP) can be started as soon as a child is born. Furthermore, any contributions made by a parent or grandparent, which can be made directly to the plan as ‘third-party contributions,’ will be taxed as if made by the beneficiary themselves. Contributions to a’relief at source’ scheme will currently receive 20% tax relief (£20 for every £80 net contribution) as long as the gross contributions do not exceed the beneficiary’s relevant UK earnings for the tax year, or £3,600 if more.
Furthermore, if a beneficiary has paid Income Tax at a higher rate, they will be able to claim the difference directly from HM Revenue & Customs via self-assessment, resulting in an additional 20% for a higher rate (40%) tax payer on some or all of the contributions.
Although a child under the age of 18 is unlikely to have relevant UK earnings, total contributions up to the ‘basic amount’ of £2,880 net (£3,600 gross) per year are tax deductible.
Pension contributions are one of the more tax-efficient ways to give money to a child or grandchild, but the money is unlikely to be available until they reach the age of 57. (normal minimum pension age is rising from 55 to 57 in April 2028).
ISAS FOR LIFETIME (LISAS)
If the child or grandchild is between the ages of 18 and 40, assisting them in saving into a lifetime ISA (LISA) can be beneficial, especially if they are trying to save for a first home. This is due to the government’s decision to add a 25% bonus to subscriptions of up to £4,000 per year (i.e. £20 for every £80 subscribed).
If withdrawals are made for any reason other than purchasing a first home, a 25% tax penalty (i.e. £25 on a £100 withdrawal) will apply unless the individual is terminally ill or over the age of 60. Because the tax penalty is greater than the initial bonus, it is usually not the most tax-efficient investment if the penalty is likely to be incurred.
Only the child or grandchild can open and manage their LISA, but money can be gifted to an account holder to pay into their LISA.
Please contact us for more information on how we can help protect your future financial well-being and the options available to you.
A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND
ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE VALUE OF YOUR INVESTMENTS CAN
GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED. THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION AND TRUST ADVICE. TRUSTS ARE A HIGHLY COMPLEX AREA OF FINANCIAL PLANNING.
Source data:  Research from LV= highlights how millions of people have helped friends and family
financially in the past six months. The LV= Wealth and Wellbeing Monitor – a quarterly survey of
4,000 UK adults – reveals that many people struggling with everyday living costs are turning
to family and friends for support 23/08/22.