Equity Release Gifting: Help Your Loved Ones

In today’s competitive property markets, one of the increasingly popular forms of financial assistance parents and grandparents are offering to their families, especially first-time buyers, is through EquityThe difference between the value of the property and the amo... Release Gifting. This involves unlocking some of the value, or equity, in their property and gifting it to a direct descendent, civil partner, or other family members. Let’s dive into how this works, and the benefits and the cons of equity release gifting.

Equity release will reduce the value of your estate and can affect your eligibility for means tested benefits.

Post Topics

What is Equity Release Gifting?

Types of Equity Release for Gifting

Advantages of Equity Release Gifting

Considerations and Risks of Equity Release Gifting

The Role of Professional Advice

Current Market Trends and Rates

Next Steps

What is Equity Release Gifting?

Equity release gifting refers to the process where an older homeowner uses an equity release product such as a lifetime mortgage or home reversion plan to release some of the value tied up in their home. This money from equity release, which can be a lump sum payment or regular payments, is then gifted to family members, often to help with significant costs such as university fees, house deposits or long-term care.

Types of Equity Release for Gifting

The two primary types of equity release are:

1. Lifetime Mortgage: The most popular type of equity release, where you borrow a portion of your home’s value. Interest accumulates on the amount borrowed, which is repaid from the sale of the property.
2. Home Reversion Plan: You sell a part or all of your home in exchange for cash payment, while retaining the right to live there rent-free.

Advantages of Equity Release Gifting

1. Helping Family: One of the common reasons homeowners opt for this route is to provide financial assistance to family members, like helping first-time buyers meet the level of deposit required in today’s competitive markets.
2. Reducing Inheritance Tax (IHT): Gifting equity can be a form of estate planning. By gifting money to family members, the value of the estate for inheritance tax purposes can be reduced, thereby potentially lowering the IHT bill. The current threshold, or tax-free threshold, for IHT is £325,000 per person, or £650,000 for a married couple or civil partnership. Gifts made 3-7 years before death can also reduce the taxable estate.

Information correct as off 12/10/2023

Considerations and Risks of Equity Release Gifting

1. Impact on Means-Tested Benefits: Releasing equity can affect your entitlement to means-tested benefits, including Care Costs support.
2. Tax Implications: While gifting equity can help to reduce a potential Inheritance Tax bill, there may be other tax implications. For example, if the homeowner retains an indirect benefit from the gift, it might still be considered part of their estate for IHT purposes. It’s important to get professional advice on this aspect.
3. Reduced Inheritance: Equity release reduces the value of your estate, which means future beneficiaries may inherit less. Some plans offer an inheritance protection guarantee which ring-fences a portion of the property’s value for inheritance purposes.

The Role of Professional Advice

Given the complexities and the potential impact equity release can have on an individual’s financial situation and future planning, seeking advice from a qualified equity release advisor is essential. Initial advice should cover the risks of equity release, benefits of equity release, and an accurate equity release calculation, which provides a personalised illustrationA document that shows the costs and terms of a mortgage, inc... of the potential impact on the homeowner’s finances.

Financial advisers play a critical role, explaining the features, risks, and benefits in relation to the individual’s circumstances. They can also discuss potential alternatives to equity release. Advisers will generally charge an advice fee for this service, which should be considered as part of the overall financial planning.

Current Market Trends and Rates

With the Bank of England’s base rate affecting lending across the board, it is important to keep an eye on Mortgage Rates, as a rate increase can have a significant impact on the cost of equity release products.

Equity Release Gifting is an attractive option for homeowners looking to assist family members in significant life milestones – be it a property purchase, paying for education or enhancing annual retirement income. It is also becoming a key component in estate planning advice, especially in the context of potential Inheritance Tax savings.

However, the decision to release equity for gifting must be considered carefully. It’s crucial to understand the potential tax implications, the impact on the homeowner’s own financial security, and the future inheritance they can pass on.

It is paramount for potential equity release customers to engage with an equity release specialist, like a financial adviser or a dedicated equity release hub, who can guide them through the equity release process, explaining the viable options based on their circumstances, and ensuring that they meet the affordability criteria set by the equity release lender.

Next Steps

If you are considering equity release gifting, it is important to seek professional advice. Talk to a qualified financial adviser or contact an equity release specialist to discuss your individual situation and potential options.

You may also find it helpful to look into the various equity release products available on the market, such as Lifetime Mortgages or Home Reversion Plans. Your adviser will be able to explain. At NeedingAdvice.co.uk Ltd, all Home Reversion Plans will be referred.