Renowned Money Saving Expert Martin Lewis has shed light on a brilliant ‘loophole’ hack that can help parents leave their kids an inheritance without paying tax.
One of the most important things you can do for your kids is to write a will, making sure to include everything you want them to inherit from you while also leaving out the things experts say you should never put in your will. But the one downside of leaving kids big pots of money to inherit, is that they'll likely loose a lot of it due to inheritance tax.
But Money Saving Expert Martin Lewis has now highlighted a loophole that can allow parents to gift their spouse and kids money upon their death without leaving them paying tax on it - and it's actually surprisingly simple.
Speaking with Lewis on his BBC podcast Not The Martin Lewis Podcast, pensions specialist Charlotte Jackson revealed that pensions can be left to dependents and used to 'pass on wealth' in a will.
“What we’re seeing more of now is people saving even in later years and not accessing that [pension] pot because it comes with tax relief and you can pass that on. And that’s a really big consideration," she revealed.
“You don’t pay tax on it at all, so if you don't access that pension pot and you were then to die, that pension pot gets passed to your spouse or your children," she continued. "So if you’ve never touched your pension it can be passed down without inheritance tax, without capital gains tax."
But there is one drawback to the loophole. Your dependents can only inherit your pension if you've 'not touched it.' That means only those who can afford to save money elsewhere for their retirement, or who can continue working after reaching pension age and therefore live comfortably without dipping into it, can use the hack.
Jackson added, "If you can afford to save something then what we’re seeing now is more people looking at that as a way of passing it on without inheritance tax. And a lot of people want to be able to do something for their families afterwards.”
For more tips and tricks when it comes to family finances, we've got you covered with insight like how much pocket money should you give your kids? And do I qualify for a school uniform grant? Plus, primary school 'costing parents £6,000' according to new research - here's 6 ways to save money.
