More wealthy families turning to equity release to save on taxes
Savings expert Martin Lewis explains equity release schemes
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Better-off homeowners are using it to save tax and make gifts to help younger family members get on in life.
Equity release involves unlocking the capital in your property and turning it into ready cash.
There are no repayments to be made during your lifetime, instead the interest rolls up and is cleared with the money released when the house is sold, after death or going into care. Homeowners retain full property ownership, and are even free to move if their new home is acceptable security for the debt.
Once viewed as last-resort lending, equity release has found a new, fastgrowing audience, said Matt Stirland executive director of later life lending at Age Partnership.
More than one in 10 equity release customers have a property valued at £600,000 or more, up almost 80 per cent on three years ago. One in 20 released at least £200,000, with many generating even bigger sums than that.
Many are using equity release to pass on a living inheritance. Stirland said: “This can also help them reduce a future inheritance tax bill.”
The money borrowed through equity release is a debt that can be offset against the remaining assets in your estate. If it is gifted to a child or grandchild, it will qualify as a potentially exempt transfer, or PET.
This means that if you survive for another seven years, the money falls outside your estate for calculating IHT.
If the beneficiary buys a property with the money, all future growth on that asset will fall outside of the parent or grandparent’s estate.
One in five Age Partnership customers with a property valued at £600,000 or more gifted money to loved ones, double the rate for those with lower value properties.
Stirling said almost a third decided to clear their outstanding mortgage. Funding home improvements, taking holidays, buying a car, clearing credit cards and paying care fees are also common reasons for taking out equity release. Most equity release mortgages charge a fixed rate of interest, and many older homeowners are keen to lock in before rates climb higher.
As life expectancy rises, the average age at which people receive an inheritance is now 61. He said: “Many families want to pass on wealth when beneficiaries are younger, to help them get on the property ladder.”
David Burrowes, chair of the Equity Release Council, said equity release is regulated by the Financial Conduct Authority, and lenders follow a strict code of conduct. “Customers are protected from interest rate rises, repossession and passing on debt due to negative equity.”
Legal & General is now offering lower interest rates for larger releases, while Aviva offers bespoke pricing.
Equity release is complex and not right for everybody. Take advice from a specialist and a solicitor, and talk to loved ones affected by the decision.
To find out more or to request a free guide, call the Express Money Equity Release Service on 0800 051 4531 or visit express.co.uk/age-partnership.
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