Morning all. I have been reading through this forum for the past couple of weeks and finally decided to register and post, as I think my situation is probably more common than I realise and someone here may have been through it already.
I am 54, hoping to take early retirement in the next 12 to 18 months. I have a DB pension from a previous employer and a DC pot from my current role. The plan, such as it is, would be to take the 25% tax free lump sum from the DC pot when I go, which should come to somewhere around £65k to £70k depending on what the market does between now and then.
My daughter is 26, renting in Bristol, earning about £32k. She has saved roughly £18k towards a deposit but with prices where they are that is not going to get her very far on her own. My wife and I would like to gift her £25k to £30k from the lump sum to top up her deposit.
What I am not clear on is the timing. If I take the lump sum in, say, summer 2026, and we gift it to her straight away, does that cause problems with mortgage lenders? I have seen mention of “gifted deposit” declarations but I do not really understand what lenders want to see. Do they care where the money came from originally, or just that it is sitting in her account?
Also, is there any advantage or disadvantage to gifting it before I formally retire versus after? From an IHT perspective I gather it falls under the seven year rule regardless, but I am wondering if there is something else I am missing.
Any pointers from people who have actually done this would be very welcome 
Most lenders require a gifted deposit letter confirming the money is a gift and not a loan, that no repayment is expected, and that the donor has no interest in the property. Some lenders also require a bank statement showing the source of funds, which in this case would be the pension drawdown. This is standard anti-money laundering procedure rather than anything specific to pensions.
On IHT, the gift is a potentially exempt transfer and falls out of the estate after seven years. There is no difference in treatment whether the gift is made before or after formal retirement. Professional advice specific to the pension scheme rules would be worth taking.
Thanks @CGT_Watcher, that is really helpful and clearer than anything I found on Google. The gifted deposit letter makes sense and I am sure we can sort that out easily enough.
One thing I am less clear on is the timing of when I actually take the lump sum from my DC pension. My daughter is probably 12 to 18 months away from being in a position to buy, and I am not planning to take early retirement until next autumn at the earliest. If I withdraw the 25% tax free lump sum and then it sits in a savings account for six months before being gifted, does that create any issues from the lender’s perspective? I am thinking about anti money laundering checks mainly. I assume they will want to see where the money came from, and a pension withdrawal statement should cover that, but I have heard stories about solicitors querying the source of funds even when it is perfectly legitimate. Am I overthinking this?
You are not overthinking it, if anything you are not thinking about it enough. When I sold my flat and briefly considered gifting some of the proceeds to a nephew for his deposit, the solicitor his side wanted three months of bank statements, the completion statement from my sale, a signed letter from me, and then sat on all of it for two weeks before coming back to ask for the same documents in a slightly different format. The anti money laundering checks are not really about whether the money is legitimate, they are about the solicitor being able to tick every box on their compliance checklist so that if anyone ever audits them they can point to the file and say they did their job. A pension lump sum withdrawal is about as clean a source as you can get, but I would still keep every piece of paper from the moment you take it out, have it sitting in one account rather than moving it around, and give the solicitor more than they ask for upfront because they will ask for it eventually anyway.
On timing, the rate cut confirmed yesterday brings Bank Rate to 3.75% but most of the benefit was already priced into fixed rate products last week. If your daughter is not buying until late 2026, the products available now will have expired long before then, so there is little value in trying to lock anything in at this stage.
One point on the pension lump sum. If you draw the 25% tax-free lump sum and gift it, the gift is a potentially exempt transfer for IHT purposes with a seven year clock. Worth factoring that in if the amounts are significant. Professional advice recommended on the pension withdrawal strategy specifically.
Mike, I hope you do not mind my joining this thread as we are going through something very similar with our eldest son at the moment. We are not drawing from a pension lump sum but we did gift a deposit from savings earlier this year and I can confirm that the paperwork side of it was more involved than we expected.
Our son’s lender required a signed gifted deposit letter from both my husband and me, proof of the source of funds going back several months, and our bank statements showing the transfer. They also wanted confirmation that we had no interest in the property. We thought it would be straightforward but our son’s solicitor came back with additional queries twice.
The one thing I would say on timing is that your daughter should not feel rushed by the rate cut yesterday. Our son’s broker reserved a product at a good rate last week before the announcement and the rates have barely moved since. If she is not buying until late 2026 then there is plenty of time to get everything in order. Many thanks and good luck to you both.
@Sparrow_Kent2, not at all, the more the merrier on this one. It sounds like your son is a few steps ahead of my daughter in the process, which is useful.
One thing I wanted to ask, you mentioned his broker had already reserved a product before the cut was confirmed. Did the broker give him the option of switching to a lower rate after the announcement, or was he locked into whatever was reserved? My daughter has not even started her application yet so I am wondering whether there is any advantage to waiting a few more weeks to see if lenders pass on the full 0.25% or whether the better deals get pulled quickly.
I keep reading conflicting things about whether lenders price cuts in before or after. CGT mentioned most of it was already baked in, but surely some of the benefit still has to filter through? Or am I being naive