How could equity release affect Inheritance Tax Planning?
But did you know it could also help to reduce the amount of Inheritance Tax that could be payable?
If we can help you please contact us on 0800 170 7472 or complete our enquiry form.
|Whether through a lifetime mortgage or home reversion scheme, equity release takes some of the value tied up in your home and releases it back to you as cash. You can then use that money for whatever you wish – perhaps to renovate your home, improve your standard of living in retirement or financially support your loved ones.|
|Sounds good, you might think, but how does this affect Inheritance Tax? In short, when you release equity from your property, you subsequently reduce the value of your estate. In some cases, this could take the value of your estate below the IHT threshold. The knock-on effect from this could therefore be a reduction in the amount of Inheritance Tax payable by your estate following your death.|
|Subject to early planning, you can gift your children as much money as you like while you are alive (this is called a Potentially Exempt Transfer). Luckily, the money from equity release counts as one of these gifts.|
|There are some rules you need to know, however. If you gift money from equity release and die within three years, then the gift will be charged at a 40% tax rate. Any gifts made three to seven years before your death will then be taxed on a “taper relief”. This is a sliding scale that decreases the tax rate as more time passes between the gift and your death.|
|For example, a gift made six to seven years before death will only be subject to a tax rate of 8%, compared to a 24% tax-rate for four to five years. In a nutshell, this means you are able to reduce the amount of Inheritance Tax your beneficiaries could have to pay, simply by planning your gifting carefully.|
Mortgage Marketplace Ltd is our main brand, for standard mortgage products. We keep Equity Release separate to make it easier for you to navigate our website and access our services.
All firms advising on or selling Equity Release have to be regulated by the Financial Conduct Authority (FCA). This provides protection, security and access to the Financial Services Compensation Scheme if you ever need it. You can refer any complaints that may arise to the Financial Ombudsman Service.
You should choose a product from a lender that is a member of the Equity Release Council (we will advise you on this). This is an industry body and its members agree to abide by a voluntary code of conduct. This includes certain product standards. When these standards are met it means you:
Our experts will advise you on the risks and benefits, but below is a summary.
There are certain conditions you must meet before being able to take out Equity Release: