Even though house prices have fallen in the last few months, substantial increases in property value enjoyed by homeowners in recent years means there is a vast well of untapped equity in the UK housing market. This can be used by the over 55’s via a lifetime mortgage, to provide a more comfortable retirement, assist with tax planning, fund home improvements or even a once in a lifetime holiday.
Lifetime mortgages* are a form of equity release and are fully regulated by the Financial Services Authority. Equity release can provide a regular income, a lump sum payment or a combination of the two. An interest only mortgage is arranged but, rather than make monthly payments to service the debt, the interest is added to the capital released.
The mortgage debt is not required to be repaid until either death or entering permanent long term care (or second death or the remaining partner enters permanent long term care, if arranged on a joint basis). It is also possible to voluntarily repay the mortgage and should you wish to move home, it is generally possible to transfer the mortgage to the new property (subject to the new property being accepted as suitable security).
A lifetime mortgage can provide the solution to the financial challenges faced in retirement caused by a fixed income, especially at a time of increasing prices. It can also enable those over the age of 55 the opportunity to enjoy the fruits of their labour and to benefit from the increase in the value of their property.
Vantis Financial Management Ltd has arranged lifetime mortgages to allow clients to release equity on a regular basis to supplement income. They have also arranged the release of lump sums to allow capital expenditure on larger purchases such as cars and conservatories, as well as gifts to children and grandchildren. As such, lifetime mortgages are a useful tool that can be considered for use when addressing the issue of Inheritance Tax planning.
Those that provide advice on lifetime mortgages such as Vantis Financial Management Ltd, are required to have specific qualifications covering this area of financial planning. The adviser will be able to explain the options open to the client, along with the risks and the safeguards built into the schemes to minimise these.
These safeguards are numerous and include such matters as the ‘no negative equity’ guarantee and the requirement for independent legal advice and, whether the provider should be a member of the Safe Home Income Plan (SHIP) organisation - to which we only recommend providers who have joined SHIP. The adviser will also be able to check to ensure that any arrangement considered will not impact on any state benefits that the client may be entitled to. Please contact Matthew Daly (Mortgage Consultant, Vantis Financial Management Ltd) on 01372 744605 for further details.
As set out above, using your property in this manner will reduce the size of your estate on death and the amount available to be left as an inheritance.
However, using a lifetime mortgage over your property to reduce exposure to Inheritance Tax may not be suitable planning for everyone and with property prices expected to fall before recovering in value, alternative planning ideas for the family home should also be considered. For example:
- Gifting the family home to children and buying back the right to live there for life; or
- selling the family home to your children subject to your right to occupy the property for the remainder of your lifetime(s); or
- selling your share of the property to your spouse for an IOU and then gifting the IOU to the children (but with Stamp Duty Land Tax payable on the consideration passing).
*This is a lifetime mortgage. To understand the features and risks, please request a personalised illustration.
For more information please speak to your local tax contact at Vantis or enter your details and submit the online form below.