My mother (widower) is 83 and would have an IHT bill after April 2027 when SIPPs become in scope of ~£400k. She isnt spending her money hardly enough to to get her estate value down so the IHT bill is increasing month by month. She has state and widows state pensions and other annuity widows pension income and tops up her monthly living costs to the tune of about £1k per month from her ISA investment income, leaving her ~£560k SIPP (inherited from my father at his death in 2023) alone up until now. She has also ISA investments (ETFs trackers etc) and a mortgage free house valued at £850k.

We are looking at the option of gifting surplus income to her two sons (myself and my older brother) - no other family are alive/connected with her will. We believe that she could start drawing down from her SIPP at her marginal tax rate - she earns £28k pension per year, so has head room to the 40% tax threshold also - and then she would gift this money to her two sons free of inheritance tax, no 7 year rule etc. We were thinking of starting to drawdown the SIPP at say £100k per year on a regular basis so would have a net tax rate in the 30% ish range.

My mum is still nervous about gifting the cash on the basis that she still thinks she might need it, care homes etc, but I have tried to explain that she will never be able to spend her money down even with 8-9 years in a care home, and we currently run a high risk of gifting the tax man a huge part of her estate after 2027. She has the £1M IHT threshold secure. She is currently in good health. Maybe she has another 5-10 years life left??

One option that she would consider is to drawdown the SIPP and gift the net income to a joint account held in my name and my brothers name, that we would both agree not to touch/spend. Just in case as she says :-). We would be happy with this if it is possible, as at least it gets the cash out of her estate so the tax man cant get at it... My other thought was to explore whether we could drawdown the SIPP into a discretionary trust to protect it and give my mum that assurance, although I believe as the trust isnt a "person" it would be exposed to the 7 year rule?

Wondering whether others have been faced with a similar challenge and what you have done. I think we will get there in the end somehow with my mum but we need to start drawing down the SIPP asap even if its just to use up the spare 20% tax threshold capacity, which seems a waste not to use.

We have thought about a Whole of Life Policy, but the age of my mum means the premiums are crazy high (£5k per month) and this would be too high a risk that she lives the next 7-10 years and we gain nothing.

Thanks.

This is not quite as simple as you state.

For example, by taking out £100K from her SIPP your mother would fall into the 60% tax trap (as her total income would be about £128K), so the effective tax rate between £100K and £125K would rise because of the loss of the income tax allowance.
So the maximum total income she should have (before tax) should not be above £100K.

Possibly taking drawdown for herself from the SIPP (instead of the £1K per month she is taking from her ISA) might make sense, as monies left at death from an ISA are subject to IHT only rather than IHT +income tax from a SIPP.

I would suggest discussing the matter with a good tax accountant before making any decisions.

She could look at investing some of her Isa into an IHT Aim service from Octopus or something similar which is only a 20% Iht charge if implemented as announced in the budget (currently 0% rated). She can live off the Sipp drawdown instead. Buying an annuity could reduce her estate and be enough to cover care costs? Equity release and retirement mortgages could liquidate some of the house capital to give you more options in lowering the estate value quicker? She could invest in a selection of Eis funds with upfront tax reliefs and business relief qualifying up to 1M?

Definitely advisable to speak to a tax and estate planner imo. Going to cost a few thousand for good advice but worth paying for potentially.

Thanks - his series of videos are very sensible and digestible.