Has anyone any personal knowledge of how financial regulations treat money left to grandchildren.

The NEW inheritance taxing of SIPPS makes me think that I should leave part of my SIPP to my 5 grandchildren.

Whilst 40% tax will be paid (I am above the thresholds for taxation) the grandchildren could withdraw money up to their personal tax free income limit each year.

My query is can their parents do this on their behalf and spend it.

Alternatively they could withdraw the maximum amount each year and deposit it in an ISA for the child !

I also wonder what options those who inherit a sipp will have. Currently as I understand it they can either withdraw all the money (not sure if it is taxed again at this point) or leave it in the SIPP wrapper (and pay marginal tax rate on withdrawals).

Thoughts anyone.

I've numbered your points above for convenience.

1. You are correct - every person has their own annual income tax allowance.

2. Interesting question.
AFAIK, spending solely for the child's benefit - for example on school fees - would be acceptable to HMRC. But general spending, eg food for the family or the child's proportion of a family holiday, would not be acceptable.
(This is an issue that advice from a tax accountant would be sensible).

3. Withdrawing up to the personal allowance and then investing in a junior ISA (and, indeed, a SIPP or GIA) in the child's name is fine.

4. Withdrawal of all the money (or any amount) will mean that marginal tax for the relevant fiscal year will be payable on the withdrawn cash.

In any case, I would suggest waiting until the results of the Treasury's consultation document are published.

This only became an issue after Osborne removed the requirement to buy an annuity
at age 75. Final salary pensions cannot be left to anyone apart the surviving spouse and
on her death any notional money left over is retained by the pension scheme.

Ditto annuities.

QED, the new situation is still not as 'bad' as the pre-2016 arrangements.

Remember Jeanne Calment who lived to 122 (maybe)
Read the final paragrapgh carefully !.

https://en.wikipedia.org/wiki/Jeanne_Calment

I suppose SIPPs are really meant to pension you and your wife - not your children and grandchildren!
xxd09

Retired tax specialist here. (Sadly, but in reality, not at all sadly) I retired before the pension freedoms came in so I never studied them.

In my view the Treasury is twisting the knife here.

It's quite clear that they are retaining the current rule making the transferred pot subject to Income Tax as it's drawn out. (Yes PA is available.)

The IHT is paid in part by the estate and in part direct out of the SIPP. At least the nightmare of having to draw taxed 'pension' to pay IHT is not there.

The SIPP doesn't pay 40%; it receives a proportion of the IHT Nil rate allowance.

Let me explain a Treasury example (with easier figures and fewer 000s to make it more clear):
Estate £1000, SIPP £250. Nil rate band £350 (for convenience)
Current: Taxable estate £650 Tax £260

New: Total estate £1250. Taxable estate £900. Tax £360
Estate pays £1000 ÷ £1250 x £360 = £288
SIPP pays £250 ÷ £1250 x £360 = £72

The existing estate pays £28,000 more tax because there's a SIPP
The SIPP pays less than 40% meaning more of the fund remains to suffer Income Tax upon withdrawal.
The proposed rule (Sorry. Possible rule.It is a discussion document!) reduces the freely distributable estate and maximises the 'taxable when drawn' estate.

It would be fairer (and in 35 years of tax that's a word rarely seen) if the SIPP paid the whole of the 'extra' tax. But it would reduce the future tax take.