Gifting to reduce inheritance tax: How we helped Erin and Ben
Erin and Ben wanted to make significant gifts to their two adult children as part of their inheritance tax planning. Before moving forward, they needed confidence that doing so would not affect their retirement plans, future spending or long-term financial security.
At a glance
Erin and Ben wanted to reduce a future inheritance tax liability by gifting wealth to their children. Through cash flow planning, we helped them understand whether they could do so without compromising their retirement plans, spending goals or long-term financial security.
Getting to know Erin and Ben
Erin and Ben, both 72, are married with two adult children, Martin and Claire. They have built significant wealth across property, investments, pensions and cash and wanted to use some of that wealth to help their children while they were still alive. They own a mortgage-free home in London and are planning to buy a holiday home, while continuing to enjoy travelling and time with their family.
As longstanding investment management clients, Erin and Ben had not previously undertaken a formal cash flow planning exercise with us or reviewed how a significant gifting strategy might affect their wider retirement and estate plans.
Why they needed our help
They were considering gifts of £1m to each child. Martin would like to buy a larger property, while their daughter Claire was planning a major extension to her home.
The gifts could help reduce a future IHT liability by around £800,000, provided Erin and Ben survived for seven years.
But the decision raised an important question: could they afford to give away £2m while still protecting their own financial future?
Our Canaccord Wealth solution
Before making any recommendations, we wanted to understand whether the gifts would leave Erin and Ben financially secure for the rest of their lives.
Using cash flow planning, we looked at their investments, pensions, savings and expected expenditure, including the planned gifts, to assess whether their long-term plans remained affordable. We also modelled a range of scenarios, including higher inflation, market downturns and potential long-term care costs, to understand how resilient their finances might be over time.
Based on our conversations with Erin and Ben, we modelled four scenarios:
- Base case - the analysis showed they could make the gifts and maintain their desired lifestyle and still retain substantial assets throughout retirement
- Market downturn - even after a significant market fall shortly after gifting, the projections still suggested their plans remained sustainable
- Higher inflation - increased future spending requirements did not create a shortfall in the couple's finances
- Long-term care costs - even after factoring in these additional expenses, the analysis suggested they were still able to meet their needs.
What happened next
The analysis showed that, even after making the gifts, Erin and Ben were unlikely to face a shortfall in meeting their expected spending needs throughout retirement. It also gave them the confidence that they could help their children now at a time when the money would make a meaningful difference, reduce a future IHT liability and still enjoy the retirement lifestyle they had worked hard to achieve.
Keeping in touch
Their plan will continue to be reviewed as their circumstances evolve, giving them the flexibility to consider further gifting or other estate planning opportunities in the future.
