My father is a widower whose home, pension and savings will soon push him into having a potential inheritance tax bill.

He has decided to give some money away now to my sister and I and will give us £90,000 each, which he said he would like to go straight into a pension, as neither of us have much retirement savings.

I am a dad of two children under 10 and a single parent, so have a low income as I cannot work full-time and get some Universal Credit.

If my father gifts me £90,000 and I invest it in a pension, will I lose my Universal Credit? 

Harvey Dorset, of This is Money, replies: Universal Credit exists to help those who are unable to work, earning a low income or cannot be employed full time, as is your case.

In order to qualify, you must have less than £16,000 in capital. This includes the contribution of savings and investments, as well as cash.

For example, Universal Credit payments can be reduced if your savings rise above £6,000.

The good news is pension pots are not considered capital for Universal Credit purposes, unless income is being taken from them, or a lump sum is being withdrawn.

To find out what you need to consider, This is Money spoke to Stephen Lowe, communications director at Just Group.

Stephen Lowe replies: There are a number of different factors your father needs to understand. 

Realistically, it would be a good idea for him to speak to a professional adviser to ensure that his objectives are met and he's not storing up problems in the future.

The main point is that although your father can gift money straight into your pension, there are limits on how much can be paid into a pension while still receiving tax relief, which is one of the main benefits of pension saving.

Factors to consider 

Parents can gift any amount of money to a child but only some gifts are immediately free of inheritance tax (IHT). 

For example, individuals have an annual exemption of £3,000 a year that can be gifted to one or more people which immediately reduces the value of their estate that could be subject to IHT. 

Any unused allowance can be carried forward one year. 

There are also gifts that are paid under 'normal expenditure out of income' rules which are immediately free of IHT but these must be paid from regular income (not from savings or asset sales).

If your father gifts £90,000 each to you and your sister, these become potentially exempt transfers for IHT purposes. 

The value of those gifts will reduce his £325,000 nil rate band – the value of the estate he can leave which will not be subject to IHT. 

If your father survives seven years (assuming no other gifts) then the whole nil rate band is restored.

While parents can make pension contributions for adult children, for tax purposes they are treated as being made by the child. 

There is a limit on the amount most working people can contribute to a pension each year and still receive tax relief. 

This is currently 100 per cent of your annual salary or the standard allowance of £60,000, whichever is lower.

You state you're on a low income, so you won't receive tax relief on most of the gift if it's paid into your pension. This reduces the tax efficiency of using a pension.

However, it may be better to use the pension route than for your father to gift the money and instead save in an Isa because this would affect your Universal Credit payments. 

That's because to get UC you usually must have less than £16,000 in 'capital' such as savings or other investments, but UC rules ignore the value of a pension pot (unless income or lump sums are being taken) and your home.

The conclusion therefore is that your father should take professional advice to ensure that solving one problem doesn't lead to others. 

Your father needs to safeguard his own interests first, for example, considering his own income and potential care needs in the future. It's only by considering all the options that the best can be selected.