We would all like to have substantial income so that we can stop or cut down on the amount of time we spend at work or even retire altogether. But what if you are facing a pension shortfall or need to meet an unexpected expense. Equity release may be an option to consider, as it allows you to unlock some of the wealth accumulated in your property without having to downsize. However, before you consider taking this option, there are key aspects of it which you must consider.
There are two main types of equity release scheme:
Lifetime mortgage – which is a loan secured on your home, it is repaid by selling your home when you die or go into long-term care.
Home reversion – Where you sell all or part of your home to a scheme provider in return for regular income or a cash lump sum, or both, and continue to live in your home for as long as you wish. To qualify for equity release you have to be usually 55 or over and own your own home. If you do have an outstanding mortgage and want to take out equity release, you will need to settle your mortgage first, which will affect the amount you then have access to for other purposes. You will receive tax-free cash as a lump sum, a regular income, or both, to use as you wish and you can continue to live in your own home. Remember though that it is still your responsibility to maintain the home.
Your equity release questions answered:
Q: Is there a minimum amount I have to take?
A: There could be a minimum amount you have to take, it will depend on the scheme and provider. But you may not have to take it all at once. Drawdown loans can be taken in smaller amounts over time.
Q: What happens to my partner if I die?
A: The scheme should be in both your names then the arrangements will continue. If you are using equity release to increase your income, make sure you consider the situation should you or your partner die. If the property and scheme were in your sole name, the property would have to be sold and your partner would have to move out, unless they could repay the lifetime mortgage in full.
Q: Does equity release reduce the amount of Inheritance Tax (IHT) due on my estate?
A: Equity release will reduce the value of your estate when you die, which may reduce a potential IHT liability. If you are considering using an equity release scheme as part of your planning for IHT, you should obtain professional financial advice.
Q: Is a sale-and-rent-back scheme the same as a home reversion?
A: No, because if you rent you may have to leave your home after the end of the fixed term in your tenancy agreement, which may only last a few years and you may have to pay a much higher rent than under a home reversion plan, and the rent could go up.
Q: What happens if we need long-term care?
A: Your equity release scheme will usually continue unchanged if care is provided in your own home or just one of you moves to a residential or nursing home. If you both move into a care home, the scheme will usually end and the property will be sold. Releasing equity from your home is a very big lifetime commitment, so ensure you have included your family in any decision you make. Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, it is crucial to obtain a personalised illustration from a professionally qualified adviser because equity release is not right for everyone and it may affect your entitlement to state benefits and will reduce the value of your estate.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE. Need more help? This feature aims to give some informal hints and McPhersons Financial Solutions are offering free advice so get in touch now to arrange your meeting.