The tax-free cash you release from your home could help you provide an early inheritance to your family when they need it most.
Leaving a legacy is one of the main concerns that people face later in life. It is important for many that they are able to provide for their family and friends after they have gone. The question of how to use your most valuable assets most beneficially can weigh heavy on the minds of those making the decision. Inheritance Tax (IHT) is just one concern that could be factoring into your thoughts.
IHT is a tax on the estate – which means money, property, and possession, of someone who has died. The 40% IHT rate is payable on the value of your estate that exceeds the £325,000 threshold.
When it was first introduced, IHT was only meant to affect a minority of the UK. However, increasing numbers of people are finding themselves subject to this tax. Last year, the HMRC recorded a 13% increase in their annual IHT take, from £4.7bn in 2016-17 to £5.3bn in 2017-18.1 This follows the trend of the previous four years of increasing IHT takes recorded by HMRC.
In part, this progressive annual growth is likely the result of rising UK house prices. As the value of people’s most substantial financial assets increases, so too will the value of their estate, meaning that increasing numbers will cross the £325,000 threshold. Indeed, the recent news that house prices in the UK have risen once again by 2.7% annually may mean that more and more families find themselves with an IHT bill looming.2
Could you gift an early inheritance?
By accessing a portion of the value of your home now, rather than leaving it as a traditional inheritance, you could provide an early inheritance to your nearest and dearest when they really need it.
Regulated equity release products called lifetime mortgages allow over-55 UK homeowners to release a significant share of their home equity as tax-free cash. This money can then be used entirely as they see fit. Your tax-free cash lumpsum can even be given as a gift to your heirs, providing them with an early inheritance and you with the precious opportunity to see your legacy in action. The sum given will be considered a gift, and therefore exempt from IHT, provided that it is given at least 7 years prior to your passing away.
What’s more, because a lifetime mortgage will reduce the value of your estate, releasing equity could help you lower the value of your estate beneath the £325,000 threshold.
We are obliged to state here that the FCA do not regulate Inheritance Tax Planning, so it is advised that you seek expert advice to put in place your own inheritance strategy.
Your peace of mind
All lifetime mortgages provided by lenders approved by the Equity Release Council feature a number of safeguards as standard.
These are designed to provide you with peace of mind as you plan for the future.
- You and your partner will retain full ownership of your home for life
- A no negative equity guarantee ensures that you will never owe more than the value of your home. This also means that you cannot pass on any lifetime mortgage debt to your heirs
- You can still move in the future. Most lifetime mortgages are portable, meaning that should your circumstances change – and provided the new house meets the lender’s criteria – you can transfer your plan to another property.
There are a range of lifetime mortgage options available which allow you to access your equity in a number of ways. These include Roll-Up plans, which provide you with a one-off tax-free lump sum, and Drawdown plans, which after an initial release, allow you to retain some of your equity in an interest-free reserve for future use. Naturally, accessing this tax-free cash now means that less will be available to your estate in the future. It is important to consider the needs of you and your family now in relation to your potential future wishes. Similarly, a significant tax-free boost to your disposable income is also likely to affect your entitlement to means tested state benefits. A personalised illustration of the features and risks to you are available.
A legacy for you both to enjoy?
Research conducted in 2017 suggested that as many as 55% of UK adults would sell any property that they inherited as soon as possible, with the intention of re-investing the money as they saw fit. Providing your family with a beneficial legacy is likely to feature in your later-life planning. Could accessing some of your property wealth now allow you to provide your family with the capital boost they need now to put their ambitions into action. Whether it’s a family home, the funds for a business start-up, or simply a contribution to a grandchild’s education, your house could hold the key to your family’s future.
Calculate how much equity you could release today and find out if you could enjoy the satisfaction of seeing your legacy in action.
Could equity release help you? Call us now and speak to one of our expert team who will give you all the information you need.
0800 652 2955
2 Halifax, ‘House Price Index’, 09/04/18
3 Property Reporter, ‘18m Brits set to inherit a property – most will not live in it’, 27/09/17