The Home Equity Release is a financial strategy primarily aimed at individuals over 55 years old, offering a way to access the value tied up in their property. This can be received either as a one-off lump sum or through smaller, regular payments, with the obligation to repay the amount, alongside any accrued interest, at a later stage.
There are two primary forms of equity release:
- Lifetime Mortgage: This option allows homeowners to secure a loan against their property while retaining ownership and continuing to live in it. The loan, together with the interest, is repaid when the homeowner dies or moves into permanent care.
- Home Reversion Plan: In this arrangement, a portion of the home is sold to a provider in exchange for a lump sum or regular payments. The homeowner can remain in the property rent-free for the rest of their life. Upon the homeowner's death or when they move into care, the property is sold, and the proceeds are divided according to the previously agreed-upon proportions between the provider and any inheritors.
Tax Implications of Equity Release
The funds received from an equity release are not subject to taxation. However, it's crucial to note that such a decision will decrease the overall value of the homeowner's estate, potentially affecting the inheritance left for beneficiaries and possibly reducing inheritance tax liabilities.
Important Considerations
- Opting for a lifetime mortgage could end up being more costly than a standard mortgage.
- The amount available for release usually doesn't exceed 60% of the property's value and depends on the homeowner's age.
- The inclusion of a 'no negative equity guarantee' ensures that should the sale of the home not cover the loan and interest, neither the homeowner nor their estate would be responsible for covering the shortfall.
For those contemplating home equity release, consulting comprehensive resources such as the AgeUK website offers valuable insights and guidance, including detailed factsheets and advice suited to the unique needs of older homeowners.
