I set out below two examples from my colleague Simon Harrison of a case where a lady was able to use Equity Release to help secure the ideal property. This lady would not have been able to achieve this with the help of a normal mortgage as her income was relatively modest.
An existing client referred me to a 65-year-old lady who was recently divorced from her husband. They shared a former marital home together which was due to be sold. The proceeds were being split between her and her ex-husband. She wanted to use her share to purchase a new home but was concerned of the mortgage possibilities due to a relatively modest income. With the help of a lifetime mortgage, I was able to secure finance for her ideal property, in an area where she had established a social network. She opted to have her interest payments compounded to the mortgage which meant the costs of the mortgage interest did not impact her monthly expenditure. It is this type of case where I believe we are genuinely helping people achieve their lifetime goals safely.
As you may imagine this is another example where this particular lady was so grateful for our service she provided a Google review.
A client with an unencumbered property valued at £2.5 million was interested in arranging a lifetime mortgage which would provide a lump sum to his three children, along with a lump sum that he and his wife would use to enjoy their retirement together. The client was referred to me by their accountant following issues with product placement as their property had shared access with a neighbouring property and 10 acres of land. For most lifetime mortgage lenders these two factors would deem the property not mortgageable within the lifetime mortgage market. I was able to locate a lender who was prepared to consider the property on the basis the shared access was maintained to a good level and the acreage was considered acceptable as there was no commercial element to the property. Following completion of the loan the client was able to gift their three children a lump sum payment and they were also able to retain part of the loan for themselves which was used to fund several holidays in their retirement. How lovely that his client was able to help his children and on the gift to his children if his wife survives seven years that will be significant Inheritance Tax savings.
In my view this type of tax planning is excellent.
I do believe that eventually there will need to be greater regulation in relation to Equity Release. For so many people, in my view, it is entirely the right thing to do and can benefit parents, children and grandchildren. I particularly like arrangements where it can be set up to ultimately help a family but save Inheritance Tax.
My main concern with, in effect, simply taking money out of your house and having the option to defer the fixed rate of interest until death, is the risk of people being encouraged to do something which may not be in the best long-term interests for them and their family. It is so easy to say why don’t you have nice holidays, a new car, improvements to your house and so on. This may be the right thing to do but it is so important to equally put forward all the downsides that may impact on a family. It also is so important to ensure that all the family are consulted and agree.
Having stated my concerns I believe Equity Release for tax planning purposes such as saving Inheritance Tax is such an enormous opportunity for so many families.
I completed one arrangement where a client in his 70s with a valuable house was able to give £1 million to his daughter. This gift being a Potentially Exempt Transfer would fall outside his estate in seven years but the loan taken, with the interest added until his death would be a debt on the estate. Incredibly in 15 years the debt with the rolled up interest less 40% Inheritance Tax would be less than the original gift. That is excellent tax planning to benefit families.
Trevor Downing FPMI FPFS
