Do you have large pension assets and substantial wealth tied up in the family home? Are you looking to help children onto the property ladder, fund your own expenses, or take measures to reduce your inheritance tax (IHT) liabilities?
If so, equity release could be a good solution, as property is part of the estate for IHT purposes (above available allowances), but pensions are not.
Equity release via a lifetime mortgage can unlock tax-free cash trapped in the family home, providing valuable flexibility and boosting financial planning options and outcomes.
You must be aged 55 or over to be eligible. The most popular form of equity release is a lifetime mortgage. This involves a loan secured against your main property, which is either taken as a lump sum or in flexible chunks (drawdown) up to a set amount (flexible sums are subject to interest rates at the time of drawdown). The younger you are, the less you can borrow.
The maximum loan amount is often between 25% and 50% of the property value. The mortgage is repaid from the proceeds of the property sale when the last person either dies or moves into long-term care. If downsizing, conditions may apply.
You can opt to make regular interest payments, in which case the mortgage balance is fixed. Most prefer to add – or ‘roll up’ – interest to the mortgage balance, meaning the loan amount and compounded interest are repaid in full via the proceeds of the property sale. The eventual loan amount can be much larger than the initial amount taken out, as interest builds up over time. The interest rate is typically fixed for life and higher than regular mortgage rates. Interest is only levied on the amount drawn down.
We’ll look at your mortgage(s), including repayments, loan terms, and interest rates, to assess whether your current deal is best suited to your circumstances. We can also assess any other forms of debt you might have.
Many myths still exist, even though lifetime mortgages are very different from certain historical equity release products that gave the industry a bad reputation. Modern products offer much more flexibility and protection for consumers.
One misconception is that you forfeit total home ownership, when in fact you maintain 100% ownership. It’s also often possible to move house and transfer your lifetime mortgage. Some are put off by the idea of rolling interest, but you can opt to make regular interest payments, or even repay up to 10% of the initial loan early, when using lifetime mortgage products approved by the Equity Release Council (ERC).
Others worry their children might inherit debt, but ‘no negative equity guarantees’, which are offered by ERC-approved providers, mean that your estate will never owe more than the value of your home.
For many families, property accounts for a large part of household wealth. Unlocking tax-free cash from the family home via equity release, and implementing a gifting strategy, could mitigate a large inheritance tax (IHT) liability and provide more flexibility when passing down wealth to beneficiaries.
Opting for equity release, and using the cash to gift to family members, can be a good way to help children with property purchases, while implementing IHT efficiencies.
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*Important notice
Our website does not provide personal advice. The value of investments can go down as well as up, so you could get back less than you invest. Pension and tax rules can change and any benefits depend on individual circumstances.