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Client uses lifetime mortgage to reduce inheritance tax and to provide gifts for the family


The clients who had an estate that was exceeding each of their unused nil rate bands (£650,000), wanted to assist grandchildren by providing deposits for the purchase of their first homes. The total estate was valued at £850,000 and therefore at the time would have incurred a possible IHT of £80,000 (£200,000 at 40%) which the clients were keen to avoid if possible.


The bulk of the estate was the main residential property itself, so it was advised that the estate could be reduced by raising a lifetime mortgage of £200,000 therefore bringing the estate to under the joint nil rate bands and saving a potential £80,000. Funds would either need to be spent or gifted out of the estate in order to reduce the estate.


In this complex scenario, many factors were taken into consideration, which allowed for multiple goals to be achieved by the use of a lifetime mortgage. The clients were able to assist grandchildren onto the property ladder by making potentially exempt transfers of £75,000 to both. This left a sum of £50,000 for the clients to make minor improvements to the property and allow them to take more holidays in retirement, all while saving a potential IHT bill.