Question
I would like to make a gift to my children (early 30s) to be invested in pensions. How do I go about this? Do I or my children get tax relief on the pension contributions?
Answer
It's a simple process where you effectively gift the money to your children and they pay it into a pension, hence they (not you) enjoy the tax relief on contributions.
To make life simpler pension providers will usually let you contribute the money directly on behalf of someone else (e.g. spouse or children), but from a tax point of view it will be treated as if they made the contribution (as per above).
Basic rate tax relief will automatically be given on the contribution, so for every £80 you contribute it'll be grossed up to £100. If the person you're contributing for is a non-taxpayer then the maximum allowed total annual contribution (that enjoys tax relief) is £2,880, which will be grossed up to £3,600 (assuming they haven't already used this allowance). Otherwise, the only consideration is whether your contribution, coupled with any they make (including their employer), pushes their total annual pension contributions above their annual income (capped at £50,000), as those in excess of this are taxed to remove the benefit of any tax relief.
If the child is a higher or top rate taxpayer then they can reclaim the additional tax via their tax return, so a £100 gross contribution would effectively end up costing £60 or £50 respectively.
Any contributions you make on behalf of your children could be viewed as a gift for inheritance tax purposes, a potentially useful way to get money your of your estate provided you live for at least 7 years after making the gift.
As for which type of pension to use, I'd consider a stakeholder or self-invested personal pension (SIPP). The former is simple and generally cheap, the latter gives more investment choice and chosen carefully can also be cost effective. Take a look at our Guide to Choosing a Personal Pension for more guidance.
Alternatively, if your children are members of an occupational pension scheme it would be worth investigating whether paying additional contributions into that scheme would be more cost effective and/or beneficial.
I would like to make a gift to my children (early 30s) to be invested in pensions. How do I go about this? Do I or my children get tax relief on the pension contributions?
Answer
It's a simple process where you effectively gift the money to your children and they pay it into a pension, hence they (not you) enjoy the tax relief on contributions.
To make life simpler pension providers will usually let you contribute the money directly on behalf of someone else (e.g. spouse or children), but from a tax point of view it will be treated as if they made the contribution (as per above).
Basic rate tax relief will automatically be given on the contribution, so for every £80 you contribute it'll be grossed up to £100. If the person you're contributing for is a non-taxpayer then the maximum allowed total annual contribution (that enjoys tax relief) is £2,880, which will be grossed up to £3,600 (assuming they haven't already used this allowance). Otherwise, the only consideration is whether your contribution, coupled with any they make (including their employer), pushes their total annual pension contributions above their annual income (capped at £50,000), as those in excess of this are taxed to remove the benefit of any tax relief.
If the child is a higher or top rate taxpayer then they can reclaim the additional tax via their tax return, so a £100 gross contribution would effectively end up costing £60 or £50 respectively.
Any contributions you make on behalf of your children could be viewed as a gift for inheritance tax purposes, a potentially useful way to get money your of your estate provided you live for at least 7 years after making the gift.
As for which type of pension to use, I'd consider a stakeholder or self-invested personal pension (SIPP). The former is simple and generally cheap, the latter gives more investment choice and chosen carefully can also be cost effective. Take a look at our Guide to Choosing a Personal Pension for more guidance.
Alternatively, if your children are members of an occupational pension scheme it would be worth investigating whether paying additional contributions into that scheme would be more cost effective and/or beneficial.
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