{"id":448633,"date":"2025-09-24T19:25:13","date_gmt":"2025-09-24T19:25:13","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/448633\/"},"modified":"2025-09-24T19:25:13","modified_gmt":"2025-09-24T19:25:13","slug":"pensioners-take-tax-free-cash-and-call-it-income-in-bid-to-cut-inheritance-tax","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/448633\/","title":{"rendered":"Pensioners take tax-free cash and call it ‘income’ in bid to cut inheritance tax"},"content":{"rendered":"

\n\t\t\t\t\tFinancial advisers say more pensioners are using tax-free retirement cash and gifting it to their children as ‘surplus income’ to try and cut inheritance tax bills\t\t\t\t\t <\/p>\n

More retirees are withdrawing tax-free cash from their pensions in instalments and then gifting it to younger generations \u2013 in what financial advisers say is a bid to use a little-known inheritance tax<\/a>-cutting tool.<\/p>\n

Inheritance tax (IHT) is applied at a flat rate of 40 per cent on estates worth over \u00a3325,000 when someone passes away, though there are many exemptions and loopholes, meaning the effective rate is often much lower.<\/p>\n

One way that people can limit their IHT bills is via gifting, as no tax is due on any gifts if you live for seven years after giving them, unless it is part of a trust.<\/p>\n

But a further lesser-used trick is the \u201cgifts out of surplus income\u201d rule<\/a>.<\/p>\n

This means that gifts that are made regularly from surplus income \u2013 any income that is leftover once all outgoings have been paid \u2013 rather than capital, such as savings or a home sale, can be exempt from IHT regardless of whether the person gifting the money lives seven years or not.<\/p>\n

Pensions are not currently included when calculating IHT bills, but will be from 2027<\/a>, and financial advisers have told The i Paper that more clients are taking money from their retirement savings and gifting them to relatives.<\/p>\n

Pensioners can also take 25 per cent of their savings \u2013 up to the value of \u00a3268,275 \u2013 tax-free, and experts say there has been an \u201cuptick\u201d in clients taking this money in regular installments rather than a lump sum, and then gifting it to grandchildren or children.<\/p>\n

Some tax experts say there is a view that pension tax-free cash \u201ccan be classed as income for gifting purposes,\u201d which means that the money can be taken tax-free and gifted without it attracting IHT.<\/p>\n

But others have warned there is a lack of clarity over the rules, and that it remains \u201crisky\u201d.<\/p>\n

Below is what some pensioners are trying to do, and the risk that comes with it.<\/p>\n

What are some pensioners doing?<\/p>\n

According to financial advisers, some pensioners are choosing to take the tax-free cash from their pensions in regular instalments.<\/p>\n

People can take 25 per cent of their pension pot \u2013 up to the value of \u00a3268,275 \u2013 tax-free, and although many choose to take this as a lump sum, others opt to take it in instalments.<\/p>\n

Once this money is withdrawn, they are then choosing to gift this money to grandchildren and children.<\/p>\n

If gifts are made regularly from surplus income, they can be exempt from IHT, as long as they:<\/p>\n