Your family
While equity release plans can be a good way of cutting inheritance tax bills, they will also reduce what your family will inherit. While it should ultimately be your choice whether to sign up to a scheme, it is probably a good idea to discuss it with close family members and/or anyone who might have expected to inherit your home. This may help avoid any unpleasantness or misunderstandings. If the property has been a family home for a long time, bear in mind that your children or other relatives may also have an emotional attachment to it. They may even have been thinking of living in the property after you die.
Children or other relatives may be prepared to help you out financially instead of you taking out an equity release plan. They could then inherit the whole property. An independent financial adviser will be able to advise on any tax issues involved.
Alternatives
You may have other assets or investments which could boost your income or give you the lump sum you need. Our advisers will be able to take a holistic view of your finances. Consider, too, whether moving to a less expensive property might be a better way of releasing money tied up in your home – rather than letting an equity release company profit from your bricks-and-mortar investment.
Benefits
If you receive means-tested state benefits, these could be reduced or lost altogether – which in turn could mean having to pay more for things like dental treatment and glasses. We will help with an assessment before you take out an equity release plan.
Standards Board of the Equity Release Council
Look for plans carrying the Standards Board of the Equity Release Council logo. Standards Board of the Equity Release Council is an industry body set up to promote safe equity release schemes. Companies who are members provide a number of guarantees, including: you will have the right to live in your property for life; the freedom to move to an alternative property without penalties; and that you will never owe more than the value of your home.
If the scheme’s income comes from an annuity, you’ll get a better rate the older you are. If you are just retired, it may be worth waiting a few years before signing up to an equity release scheme in order to get a better deal. Equally if you are very old or in poor health you should think carefully about schemes paying monthly incomes – you may not live long enough to get a decent return.
Costs
The equity release market is becoming more competitive. But interest rates on mortgage-based schemes, for example, are still noticeably higher than those on ordinary mortgages. Most equity release plans also involve paying valuation and legal fees, although these may be refunded assuming you go ahead. You remain responsible for repairing and insuring your home, and will still have to pay the council tax. Reversion companies in particular will expect you to maintain your home to a reasonable standard to protect their investment.
Moving On?
You may want to sell your house at a later date and move somewhere smaller or more suitable for your needs, or you may want to sell up completely to move into rented sheltered housing or into a care home. Our advisers will be able to check whether any plan you are considering allows you to transfer it to a new property or whether there is a penalty if you end the scheme before death.
Advice
Getting independent financial and legal advice before taking out an equity release plan is recommended by both the charity Age Concern and the Financial Conduct Authority, the UK’s chief financial watchdog.
For further information on mortgages, please contact us and we will be pleased to help you. Your home may be repossessed if you do not keep up repayments on your mortgage. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. This is a lifetime mortgage. To understand the features and risks ask for a personalised illustration.