If you are looking at inheritance tax planning and want to access money from your home without having to sell it, equity release is an increasingly popular option.
What is equity release? It allows people aged 55 and over to access the equity which has built up in their home without having to sell it. The equity can either be taken in the form of a lump sum or as a regular income.
Equity release can be used for various purposes, including supplementing retirement income, paying off debts or funding home renovations. However, one of the most popular benefits of equity release is its potential to reduce inheritance tax (IHT) liability.
Benefits of equity release for borrowers and beneficiaries
IHT is a tax on the net estate (property, savings and possessions less any debt) of someone who has died.
Rising property values are taking up an increasing amount of IHT allowances, the threshold under which the tax does not apply, which has caused concern in recent years. This is further compounded by the fact that IHT allowances have not kept pace with the hike in prices, remaining largely unchanged for a number of years.
However, releasing equity can help those looking to reduce the value of their estate and potentially mitigate their IHT liability.
This is because by releasing equity from their home and gifting, individuals can pass on assets during their lifetime, reducing the eventual value of their estate. This, in turn, can lower the IHT liability for their beneficiaries when they pass away.
In addition to practical estate-planning benefits, equity release also means borrowers have the satisfaction of knowing that assets they have accrued over a lifetime are being used to directly benefit those closest to them.
For example, funds from equity release could be used to help a child or grandchild purchase a property, pay for their tuition fees, or fund a dream getaway.
These options provide a genuine “feel-good factor” and a sense of fulfilment in not only being able to support loved ones in meaningful ways, especially with soaring inflation and cost-of-living increases but being around to see this happen.
What to consider before opting for equity release
While equity release can be a useful tool for both reducing IHT liability and helping out family members, it is not a decision to be taken lightly.
It is not a one-size-fits-all solution for IHT planning, and its suitability will depend on individual circumstances and goals. Seeking professional advice from a tax specialist is essential when considering it as part of estate planning.
One key consideration is the potential impact of equity release on future inheritance. Funds released will reduce the value of an estate, and the amount of remaining inheritance, which may not be the desired outcome.
When considering equity release, it is important to seek professional advice from a specialist later life mortgage adviser. They will be able to provide a personalised illustration and guidance on whether this is the right choice as well as the amount of equity that can be released. This enables homeowners to explore the options open to them, and also discuss their plans with beneficiaries.
For borrowers interested in exploring this and other later life options available to them, we discuss all possible scenarios, so no decision is taken without a full and deep understanding of the numbers involved, and any future implications.
If you’d like to find out more about how equity release or other later life mortgage options could help you achieve your objectives and inheritance tax planning, please get in touch for a no-obligation chat.
Please note: a mortgage is secured against your property. Your property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. To understand the features and risks, always obtain a personalised illustration. Please also note we do not offer personalised advice regarding home reversion. The information provided about home reversion is for general information purposes only and does not constitute financial or professional advice.