Part-funding property for daughter.

Bonavino

My wife and I are looking at releasing funds to help our daughter with a property purchase of around £180k. One option we are considering is to use the remainder of my pension TFLS as a deposit towards the property (I took £168k TFLS from my Defined Benefit pension when I retired in 2023 and I currently have £500k in a SIPP). My current drawdown rate on SIPP (based on plans before pensions were moved into estate for IHT purposes) means I wouldn't use up the whole TFLS.

Could this deposit be gifted to reduce potential inheritance tax bill subject to the current IHT rules (survive 7 years and is not a benefit in kind)? If so, as my wife is 10 years younger than me, is it OK to gift the money in her name alone? Our first thought was simply to be guarantors of the mortgage and then help with mortgage payments, but I then realized it might potentially be an avenue for better managing our inheritance tax exposure.

As background for those wondering about affordability, our financial position is roughly:
Age: Me: 66. Wife: 56.
Income: Me: £50k pa. £38k pa (from DB & State Pension) plus £12k pa (from savings & SIPP)
Wife: £8k (earnings from part time hobby)
Savings: Joint: £130k (ISA/Savings/Bonds, etc)
Pension: Me: DB (In-payment with £168k TFLS taken), £500k (SIPP with £90k available TFLS)
Wife: £5k pa DB, £60k SIPP (neither taken). Widow's Pension of £20k pa when I croak.
House: £600k no mortgage.

I understand that we are in a very fortunate position and this gift won't jeopardise our retirement, given our lifestyle. I don't anticipate that I will require care home costs, given our ages and there should be enough to cover my wife, if required. All things being equal, we'll go through a similar exercise in a couple of years when our son graduates (using savings for a deposit).

Based on this information, is there anything I haven't considered that might impact our thinking. Thanks for taking the time to read.

LHW99

Have you checked both your state pension provisions (35 years isn't relevant)?

Worth checking what income you would both have if one passed early, and if that would be enough to support lifestyle.

Brie

You will need to provide a letter to the solicitor confirming that it is an outright gift to your daughter that you don't expect her to pay back.

Also consider what her position may be personally in a few years time. She is married or with a partner but then splits and there is a dispute over ownership and she needs to sell at a loss. Or she simply wants to sell to sail around the world. Or something catastrophic happens (dog forbid) to her and her will has left everything to the donkey sanctuary. How will you feel about any of that.

Bonavino

Thank you, good points to consider.

Marcon

Based on this information, is there anything I haven't considered that might impact our thinking.

Have you actually looked at how much IHT would be payable, assuming the rules and allowances stay as they are (plus the proposed changes in 2027).

If you are the first to die and leave everything to your spouse, and she then leaves everything to your two children, she'd have a total IHT-free allowance of £325K x 2 + £175K x 2 = £1m.

Yes, some IHT would almost certainly be payable, but maybe not as much as you fear. It's probably worth taking some expert advice based on a full understanding of your situation - and, of course, ensuring you both have up to date wills/Expression of Wish forms/Powers of Attorney. One thing which would be well worth considering is making gifts out of income to your daughter (and possibly son), which would mean there's no need to live for another 7 years before they fall out of consideration.

Bonavino

Thanks Marcon, you're right regarding the figures I provided, however, at some point (not anytime soon) my wife will inherit which will make the IHT more significant. Either way, we are not losing sleep over IHT (I have no complaints in theory with closing the loophole of pensions being outside IHT consideration), this is more about us taking the sensible steps to help reduce it.

We are working our way through our list of things to do which include updating wills, taking out POAs, etc. also including looking into my wife accessing her pension to top up her earnings to the minimum tax threshold. She has transferred £1,260 of her personal allowance over to me.

Gifts out of income is something I have started looking at (we're paying both kid's rent at the moment which can be used towards their mortgage, in time) but I fully intend to obtain expert help on it all. I am keeping records as is commonly recommended.

Marcon

When your wife does inherit it might be worth considering a deed of variation in favour of your children - but you may already have that in mind.