Grandchildren inheriting a SIPP and private school fees
Discussion
My father passed away a few months ago and left his SIPP to myself and my 2 sons (aged 5 and 8).
I believe that they have a personal allowance each and can therefore extract ~£12k p.a from the SIPP without paying any income tax.
My question is whether it is possible to pay for (potential) private school fees with their extracted funds?
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I believe that they have a personal allowance each and can therefore extract ~£12k p.a from the SIPP without paying any income tax.
My question is whether it is possible to pay for (potential) private school fees with their extracted funds?
.
How old was your father?
Children cannot inherit directly I believe, so the SIPP funds will need to remain in a trust until they are 18. The SIPP is of course a trust but you aren't a trustee so not ideal.
The trustees should use the funds for the exclusive benefit if the child. I dare say it could be argued paying for a private education is that, and worthwhile, but it's open to debate.
Children cannot inherit directly I believe, so the SIPP funds will need to remain in a trust until they are 18. The SIPP is of course a trust but you aren't a trustee so not ideal.
The trustees should use the funds for the exclusive benefit if the child. I dare say it could be argued paying for a private education is that, and worthwhile, but it's open to debate.
You need specialist insured advice but I know from my own experience ( at few years ago), children of that age and income like that is charged against the parent and is lumped on to the parents income. If that wasn't the case someone with 10 kids and a business would be well in the money
I assume the IHT part if it is relevant is sorted but if not again proper advice is required, HMRC and IHT have become a hot subject, my neighbour "gifted" her house to her children but continued to live there, all services were in her name etc.
She died and the house was part of her estate, a horrendous IHT bill is now correctly due.
I assume the IHT part if it is relevant is sorted but if not again proper advice is required, HMRC and IHT have become a hot subject, my neighbour "gifted" her house to her children but continued to live there, all services were in her name etc.
She died and the house was part of her estate, a horrendous IHT bill is now correctly due.
Talk to the SIPP provider.
When my father passed, my kids were over 18 but my sisters kids were younger. I'm sure she was able to withdraw 12,570 per year for each of them and put into regular savings. Hence using their zero tax allowance before they were at an age to be earning.
Whether you can decide how to spend that money on their behalf is a different question - and one they may take issue with at some point in the future..... Would they prefer a decent house deposit to a private education ? etc etc.
BTW - if not already too late - beneficiary nominations are not binding. The trustees can change them at their discretion. So you can ask them to consider something different. In my case, my wife became the beneficiary of my share - she doesn't work and had a tax free allowance going spare
When my father passed, my kids were over 18 but my sisters kids were younger. I'm sure she was able to withdraw 12,570 per year for each of them and put into regular savings. Hence using their zero tax allowance before they were at an age to be earning.
Whether you can decide how to spend that money on their behalf is a different question - and one they may take issue with at some point in the future..... Would they prefer a decent house deposit to a private education ? etc etc.
BTW - if not already too late - beneficiary nominations are not binding. The trustees can change them at their discretion. So you can ask them to consider something different. In my case, my wife became the beneficiary of my share - she doesn't work and had a tax free allowance going spare
I spotted this on an abrdn site…
“Drawdown arrangements can be created for minors. Any withdrawals must be made by a person with parental responsibilities towards the child, and applied for the child's benefit.”
If your father was over 75 when he passed, the unfortunately named ‘death benefits’ will generally become taxable as income on the recipients, but as you pointed out, your children will have their own personal allowances so their first £12,570pa will effectively be receivable tax-free.
Less clear to me is whether there is ever any chance that some residual ‘tax free cash’ can be extracted from an inherited SIPP (death post-75 and assuming that the 25% allowance hadn’t already been consumed) or if that source of TFC dies with the deceased.
“Drawdown arrangements can be created for minors. Any withdrawals must be made by a person with parental responsibilities towards the child, and applied for the child's benefit.”
If your father was over 75 when he passed, the unfortunately named ‘death benefits’ will generally become taxable as income on the recipients, but as you pointed out, your children will have their own personal allowances so their first £12,570pa will effectively be receivable tax-free.
Less clear to me is whether there is ever any chance that some residual ‘tax free cash’ can be extracted from an inherited SIPP (death post-75 and assuming that the 25% allowance hadn’t already been consumed) or if that source of TFC dies with the deceased.
Mogul said:
Less clear to me is whether there is ever any chance that some residual ‘tax free cash’ can be extracted from an inherited SIPP (death post-75 and assuming that the 25% allowance hadn’t already been consumed) or if that source of TFC dies with the deceased.
It dies with the deceased if not taken.Thanks for all the replies.
Yes my father was over 75 when he died so I'm aware that any withdrawls from his SIPP are subject to income tax. Hence my thought to try to use the children's annual allowances before they start earning. Maybe the best idea is just transfer out of the SIPP and into JISA's each year and let them decide what to do with it when they're 18.
I believe I could potentially change the beneficiary nominations, but I'm an additional rate tax payer and my wife is a basic rate tax payer so not sure if that is a good idea.
Yes my father was over 75 when he died so I'm aware that any withdrawls from his SIPP are subject to income tax. Hence my thought to try to use the children's annual allowances before they start earning. Maybe the best idea is just transfer out of the SIPP and into JISA's each year and let them decide what to do with it when they're 18.
I believe I could potentially change the beneficiary nominations, but I'm an additional rate tax payer and my wife is a basic rate tax payer so not sure if that is a good idea.
Atlantis67 said:
I believe I could potentially change the beneficiary nominations, but I'm an additional rate tax payer and my wife is a basic rate tax payer so not sure if that is a good idea.
The only other consideration is who has what pension already & at what age you intend to retire. Therefore how you will draw the combined pensions in retirement. If your wife has sufficient (or expects to) to use all her tax free amount through retirement, then I guess it makes no difference unless you expect to be a higher rate tax payer in retirement. My wife only had a small pension of her own and was able to start drawing the inherited SIPP at 55.Gassing Station | Finance | Top of Page | What's New | My Stuff