Lifetime ISA v Pension

Hertsclarets

I am looking to give my children £100 each per month which they can use towards a first property.  I have a number of questions on this on which is the best route to take.  My children are aged 20 and 18:  I am 56 years old.

1. If they open a LISA and I pay in £1200 per year, then they receive a 25% bonus from the government in addition to any growth in the fund.  The downside is they can only use it towards a property up to 450k, which at the moment is way out of their reach.  In addition, they live in a part of the country where property prices are above the national average.  My concern is that they may never be in a position to afford to buy somewhere, so will not be able to benefit from the investment or government bonus.

2. I have a mix of pensions from current and previous employers, plus a SIPP with Vanguard.  I am just about in the higher tax bracket so would benefit from 40% tax relief on any contributions into the SIPP, so if I invested the 2 x £100 per month into my SIPP, tax relief would give me 2 x £140 investment each month.  I understand I can only make this withdrawal once, but if i were to make this investment for say the next 10 years and assume a modest 5% growth pa my total net investment of 13200 to each child will generate 25000.  The disadvantage to me is that i can only take the 25% of my pension once, the benefit is that when they need their money it will not be governed by property purchase cost restrictions.

I am not sure which of the above options gives me the best bang for my buck and if there are drawbacks or benefits i am not aware of.  Any guidance on the above will be gratefully received.  

WillPS

Just as a minor point - it's unlikely you'll be able to pay £100/month directly in to your adult children's LISAs. Most (all?) accounts stipulate that deposits have to come from an account in the same name as the LISA is held in. Moneybox have a gifting link but it only allows 4 gifters and a maximum of £500 each (both per tax year). 

Above that, I think you'd have to send the money to the beneficiaries and have them pay it in themselves.

eskbanker

Hertsclarets said:

2. I have a mix of pensions from current and previous employers, plus a SIPP with Vanguard.  I am just about in the higher tax bracket so would benefit from 40% tax relief on any contributions into the SIPP, so if I invested the 2 x £100 per month into my SIPP, tax relief would give me 2 x £140 investment each month.  I understand I can only make this withdrawal once, but if i were to make this investment for say the next 10 years and assume a modest 5% growth pa my total net investment of 13200 to each child will generate 25000.  The disadvantage to me is that i can only take the 25% of my pension once, the benefit is that when they need their money it will not be governed by property purchase cost restrictions.

£100 of net contribution is grossed up to £125 in your pension, and you'd also benefit from additional tax relief outside the pension, but you should recognise the effect of taxation when withdrawing the money from the pension - you shouldn't need to take 25% tax-free as a one-off but can only access 25% of the value in total without tax.  You could choose to gift the money wholly from the tax-free component but in doing so you effectively incur more tax yourself than you otherwise would have done, so this ought to be factored into the equation.

Albermarle

If you add to a pension, it might be easier just to increase the contribution % to your current workplace pension.( assuming you have one ?)
It depends what kind of pension it is and how the contributions are made.

Hertsclarets

Albermarle said:

If you add to a pension, it might be easier just to increase the contribution % to your current workplace pension.( assuming you have one ?)
It depends what kind of pension it is and how the contributions are made.

It is a Local Government pension.  My preferred route if i was to go that way is to contribute to my Vanguard SIPP as it represents around 25% of the total valuation of my other pensions (as of 2022 I had to get CETV for all pensions as part of a divorce settlement) so would make the withdrawal a simpler process.