IHT question

[Tye Green]

Can someone tell what's wrong with this idea please?

Suppose I know I'm going to die within 5 years (i.e. before 75) & I sell my house which is worth £500k but continue to live there as a tenant paying monthly rent etc to the new owner.

My SIPP (which I haven't yet drawn from) currently has a £500k pot and after the house sale I put the £500k proceeds into the SIPP. That figure is obs above the £60k Annual Allowance.

My son is the sole beneficiary of my SIPP which now has £1m in it & SIPP can be inherited tax free.

Have I helped him to avoid IHT and avoided CGT?

[Panamax]

It's not obvious to me how paying 40% or 45% income tax on the excess over £60k is a better outcome than paying 40% IHT.

And anyway, SIPP contributions need to be made out of "relevant earnings", not just cash you happen to have lying around.

"To calculate the amount of the Annual Allowance Charge the total gross amount that has been contributed to all your pensions in the tax year in excess of your personal annual allowance is added to your income for the year, and then income tax is applied. Effectively the charge will cancel out the tax relief you receive."

[worsy]

SIPP's are IHT exempt

You have an IHT allowance of 325k plus a residence band of 175k. Therefore as it stands no IHT payable.

Check back after the budget though.

[Richonenope]

You would need a SIPP provider who accepts non-tax relieved contributions, also leave a little to put in the tax relieved contributions of £3,600 pa allowed over the next five.years. You could also pay in to your kids pensions, if they were higher rate tax payers they could claim the higher rate relief themselves for some extra ££s

Don’t forget to nominate on your SIPP, and check it offers nominee and successor drawdown.

Think about how you word your nomination to offer the maximum flexibility to your intended recipients, such as I leave X% to Mr A, but should they not need all the fund please consider giving Y% to Mr B and z% to Mrs C.

[Tye Green]

Panamax said:

It's not obvious to me how paying 40% or 45% income tax on the excess over £60k is a better outcome than paying 40% IHT.

And anyway, SIPP contributions need to be made out of "relevant earnings", not just cash you happen to have lying around.

"To calculate the amount of the Annual Allowance Charge the total gross amount that has been contributed to all your pensions in the tax year in excess of your personal annual allowance is added to your income for the year, and then income tax is applied. Effectively the charge will cancel out the tax relief you receive."

according to a couple of SIPP advice sites I've visited it seems that any amount can be paid into SIPP but may attract a tax charge but I cant find what that tax charge amount is. I'm not suggesting that HMRC will add back in the income tax charged.

[Panamax]

Tye Green said:

any amount can be paid into SIPP but may attract a tax charge but I cant find what that tax charge amount is.

Which is why I carefully set it out for you in my previous post...

"The total gross amount that has been contributed to all your pensions in the tax year in excess of your personal annual allowance is added to your income for the year, and then income tax is applied. Effectively the charge will cancel out the tax relief you receive."

[isleofthorns]

Tye Green said:

Can someone tell what's wrong with this idea please?

most of it.. and a chance after the budget all of it!

[Caddyshack]

Look at potentially exempt transfers.