Preserving a Family Home
The couple, both retired and living modestly, owned a single asset: their primary residence—a family home passed down through generations, valued at approximately £3 million and held without mortgage debt. They intended to assist their grandchildren onto the property ladder while also mitigating the inheritance tax burden on their estate.
With no other assets or liabilities and limited income in retirement, they found themselves in a common yet challenging position: asset-rich, but cash-poor. Gifting the property outright was not an option, as they still required a place to live. Yet with a high-value residence and limited inheritance tax allowances, they faced a projected liability of £940,000.
The Inheritance Tax Challenge
The value of their estate meant they were unable to claim the residential nil-rate band, limiting their combined tax-free threshold to £650,000. The remaining £2.35 million was exposed to inheritance tax at 40 per cent, a significant sum for the next generation to bear.
Faced with the difficult choice of selling the property or exploring more sophisticated alternatives, the couple sought professional advice to maintain both their home and their philanthropic intentions.
A Tailored Financial Solution
Working in partnership with P10 Financial, advisers explored the viability of a lifetime mortgage, a form of equity release. This approach enabled the couple to unlock £2 million from the value of their home without the need to sell or relocate.
The funds were subsequently gifted to their grandchildren, providing vital support for property purchases. Crucially, the £2 million mortgage liability effectively reduced the couple’s chargeable estate, resulting in a projected inheritance tax saving of £800,000.
Under current tax rules, if the couple survives the gift by seven years, the full tax benefit will be realised, with partial relief available after three years.
Collaborative, Considered Advice
Although tax advisers are not authorised to recommend financial products, this case highlights the value of a collaborative approach. By working alongside regulated financial advisers, tax specialists were able to guide on the implications of various strategies, allowing the couple to make informed decisions aligned with both their financial and personal goals.
In this instance, the solution met all the couple’s objectives: preserving the family home, providing immediate financial support to the next generation, and substantially reducing the estate’s exposure to inheritance tax.