It really is possible to get more money back in tax relief than what you put into a pension 

There are a few ways you can ‘play’ the system and be super tax efficient especially using all the allowances available to you as a family.  

Here are a few examples where families can come together and significantly reduce the tax bill for yourself and your children. 


Tax relief for parents with an Inheritance Tax issue and high earning children



Tax relief means you either pay less tax or you get tax back.  

Contributing to a pension is one of the best ways of getting tax relief.  

Tax relief at 115% means you as a family can pay less tax and get more tax back than the pension contribution you pay in.  

Don’t worry if you are already retired or over 75. You can still pay a contribution into your child’s pension 

So how’s it done? 

Well in this scenario you need to have an Inheritance Tax problem, meaning your estate value is over all available allowances and the excess will be taxed at 40% on the death of you and/or your spouse.  

Your child also needs to be earning at or above £110,000. At this level of earnings your child starts to lose their Income Tax Personal Allowance at a rate of £1 for every £2 of earnings over £100,000. This means the income between £100,000 and £125,140 (2021/22) is effectively taxed at 60%! 

So let’s say you make an £8,000 contribution to your child’s pension. 

In your case this would be classed as a gift, but if you broke this down into monthly payments of £666.66 and paid it in out of excess income every year there would be no Inheritance Tax implications, and you would save £3,200 in Inheritance Tax (40% of £8,000). 

For your child, the £8,000 pension contribution would gross up to £10,000 inside the pension using the relief at source method. That’s a £2,000 additional amount contributed to the child’s pension. 

What’s more the child would see their personal allowance returned and therefore a £4,000 saving in Income Tax. 

So let’s put this altogether: 

Pension contribution made by parent to child’s pension = £8,000 

Inheritance Tax saving for the parent = £3,200 

Income Tax saving for the child = £4,000 

Extra ‘grossed up’ pension contribution = £2,000 



Which on an £8,000 contribution is 115% 


Tax relief for parents with an Inheritance Tax issue and children with a Child Benefit tax charge 


Here there is slightly less gained in tax relief, but this type of planning also works if you have children earning over £50,000, have their own children and therefore suffer a Child Benefit tax charge 

Child Benefit payments are available for anyone who has a child under 16 or under 20 if they stay in approved education or training. It can be paid to the mother or father but not both.  

Once a parent earns over £50,000 Child Benefit is effectively lost at a rate of £1 for every £2 over £50,000.  

By making pension contribution on behalf of your child who has their own children, you as a family can benefit from tax relief at 103%! 

Here’s how it’s done. 

Your child earns £60,000 and you have an Inheritance Tax problem. 

You make an £8,000 contribution into their pension and immediately benefit from a £3,200 saving in Inheritance Tax as per the example above. 

Again, as above, the £8,000 contribution into the child’s pension grosses up to £10,000 meaning an extra £2,000 additional payment in. 

This also has the effect of reducing the child’s adjusted net income and therefore wiping out the Child Benefit tax charge meaning a total tax saving of £3,045.  

Let’s add it all together: 

Pension contribution made by parent to child’s pension = £8,000 

Inheritance Tax saving for the parent = £3,200 

Income Tax and Child Benefit tax charge saving for the child = £3,045 

Extra ‘grossed up’ pension contribution = £2,000 



Which on an £8,000 contribution is 103%


So there you have it, a couple of examples where you can legally make use of all the allowances available to you to ensure you don’t pay any more tax than you need to and increase your overall family wealth.   

Some great financial planning if you are already making gifts to your children due to your Inheritance Tax issues.  

It’s not always just about the tax but by making gifts into your child’s pension they get the benefit of being able to focus on other financial priorities like clearing debt and getting onto the housing laddersafe in the knowledge that their pension funds are still building for retirement. 

You do need to be careful of pension allowances for the child and gifting rules for you so do seek professional advice. 

This is the type of tax planning strategies we put in place for our client families on a regular basis. If you would like more information and a friendly chat please contact us  

We recently ran a webinar on Inheritance Tax and protecting your wealth. You can watch the recording below.  


Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.