PAM Guide to Wealth Management

Equity release

An increasing number of older people have been turning to equity release to release funds built up in property. Equity release schemes often involve a lifetime mortgage, under which no interest is payable during the lifetime of the borrower. The capital released and the outstanding interest is only payable on the death of the borrower, or their surviving spouse.

Equity release can be used to provide an income for retired people who want to extract value from their homes. Alternatively, where the released funds are not required to fund your retirement, they may be gifted away. If you then survive the gift by more than seven years, it will not be subject to IHT and the mortgage and interest payable may be available as a deduction against the value of the property in your estate.

Caution does need to be taken with equity release, as it can leave little value in the house on death. Using equity release to mitigate IHT is not advantageous in all cases. One of the key decisions as to whether you should use a lifetime mortgage is whether the tax saved outweighs the cost, including the interest incurred. Among the considerations is the age and life expectancy of the people taking out the lifetime mortgage.

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