| These days, many borrowers are releasing equity from their own home for pro-active reasons. One example is to gift money to family and/or friends to help them meet a multitude of immediate needs. For the giver, it enables them to use their wealth now, possibly when it’s needed most by others, plus they will see the joy those funds will bring. Family first In most cases, it’s likely that help would be prioritised for the family, and this could encompass areas such as: – school and university costs. – a deposit for a first home. – assisting home improvements for family members. – generally helping to ease other family members through the current cost-of-living crisis. Happy families Also, by accessing money via a Lifetime Mortgage, this generally means that the homeowner can remain in the family home – with or without having to make monthly payments of the interest owed. With regard to this, an agreement may even be struck, where the family members who’ve benefited, then help pay some, or all, of the monthly interest, and maybe even chip away at the capital amount. The benefit of this approach would not be lost on those that would ultimately expect to be beneficiaries of the estate. Managing tax liabilities This pro-active stance, may also deliver an additional tax-planning option for High-Net-Worth homeowners. Clients should turn to their accountant for qualified advice, but here are a few ways that equity release may assist wealthier clients. – If they have a decent amount of equity in their property and a good pension pot, then they’ll know they have options. In this instance, 75% of the money released from a pension is likely to be liable for income tax, conversely, money released from an equity release loan is tax-free. It’s then down to discussions with the accountant to weigh up the reduction in tax liability vs. the cost of the loan. – Another consideration is Inheritance Tax (IHT) planning. This tax is generally paid out at 40% of the value of the estate above the threshold level. On an individual basis, this could kick in from £325,000. But, if they’re married or in a civil partnership, and passing on a home, then the threshold level for a couple could increase to £1m. As an equity release loan sits as a debt against the estate, a by-product of gifting money could be that they lessen their tax liability on death. However, the rules surrounding this area are highly complex, such as the seven-year rule for gifting, so they would need to take tax advice too. HM Revenue & Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. Please contact me to hear more… |
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Together We Rise: A Campaign for Everyone
