All information provided on this page has been provided by our Equity Release partners, Responsible Equity Release who handle all enquiries on behalf of the-insurance-surgery.co.uk.
Doesn't it reduce future inheritances?
Certainly, the interest rolled up on Lifetime Mortgage schemes (or reduction in the value of the portion sold, plus any share of future increases in value in a reversion scheme) will reduce the estate's value and this is why we suggest you talk it over with your family. However, as many people are finding, it can allow you to enjoy helping family members during your lifetime - possibly to help grandchildren buy they're first home.
With a lifetime mortgage, if you live a long time or house prices fall, there may be no equity left for your heirs to inherit.
Also for those whose estate (including the home) exceeds the level of inheritance tax (£275,000 - 2005/6) it may also reduce, possibly even avoid the estate being liable for any tax (40% of everything over £275,000). Indeed some of the lump sum realised from equity release can even be invested in trust for your children so that growth made on it would normally fall outside of your estate for tax purposes. However, as the rules on Inheritance Tax are liable to change and equity consumed by any equity release scheme may exceed any Inheritance Tax savings made, we strongly suggest that Equity Release should not be considered solely as a means of mitigating Inheritance Tax but only if there are other more immediate needs to raise money.
Will Equity Release prevent me moving?
You can move an equity release plan, without penalty, to another suitable property. However, if you move to a smaller property, to avoid a loan representing a large percentage of your new home, you may be asked to repay some of the original loans, to keep the new loan in proportion to the cheaper property. If so, this would normally come from the profit made on moving. The right to move is subject to the provider's approval and depends on there being sufficient equity remaining to afford the new property.
What happens if I need Long Term Care?
If the time comes, when one applicant in joint cases requires professional care, the other applicant still retains the right to live in the home and the plan continues. In the case of a single applicant needing to move into a Residential or Nursing Home the house is sold and the provider repaid. The amount repaid would normally reduce the value of the home in any calculation of assets used by the Local Authority when assessing your ability to pay. From April 6th, 2005 anyone living in England with assets over £20,500 (2005/6) will need to pay for their own care until assets fall below £20,500. This leads to further erosion of your estate. You could, however, use some of the equity released to purchase a Long Term Care protection Plan which would help provide for such care costs.
Can I pay off the loan?
Any specialist Equity Release plan should be seen as a life-long plan. However, should you come into money or want to sell your home without buying another (in the UK), most Lifetime Mortgage schemes or interest only mortgages will allow you to pay off all or some of the loans, but you may need to pay an Early Repayment Charge in the first 5 years although, with some specialist schemes, this may be at anytime. You may, therefore, prefer to invest the money or put off selling until such time as the penalty period no longer applies.
Are there any properties on which you cannot release equity?
- Properties not in mainland UK.
- Properties worth less than £70,000 would not be attractive.
- Leasehold properties where less that 75 years of the lease remain, or when the property is part of a trust. It is possible to extend the lease at the same time as releasing equity
- Freehold flats may also be unsuitable
- If property is ex-local authority and over 50% of neighbouring properties are owned by the local authority
Should your property fall into one of the last three, we may still be able to find a suitable lender.
What About Taxation?
The lump sum produced from releasing equity via a lifetime mortgage or reversion scheme is free of both Capital Gains Tax and Income Tax. Should, however, you put the money into a deposit account you will be taxed on the interest you receive from it. If you wish to invest some of the equity released for income, we can offer you advice on how to achieve this tax efficiently.
Probably scrap the bit about reversionary schemes and annuities. This represents <0.5% of the market and rarely is there a plan which provides an income via annuity.
Couldn't we just borrow money to help us?
Yes. Even when retired, banks and building societies will offer loans and even interest only mortgages. You should bear in mind that the repayments will increase your outgoings per month, and so add further pressure to balancing the budget. Alternatively, some of your family may even be prepared to lend you money. Whilst this latter option should be the cheapest, many people decide not borrow from their family, preferring instead to profit from their own shrewd investment.
Why not release capital by moving to a smaller property?
For those with large detached properties, moving to a smaller property could release considerable equity. Also for those who are willing to move from their own area to a cheaper one, considerable equity may be able to be released. In either case, moving would normally provide the cheapest option.
However, if you prefer not to move away from family and friends, or have a typical three-bedroom semi you may find that moving to somewhere smaller, especially once the costs of estate agents, solicitors and removals are taken into account, may not release sufficient equity
Could we generate extra income by renting a room in our property?
Whilst this can produce valuable extra income and provide companionship, you may find your need is more for a lump sum or you may simply prefer not to share your home with a stranger.