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Houses don’t have to be illiquid…

By Nigel Smith

Hawsons Wealth Management Ltd

THERE are times in life when we may find ourselves with a very nice retirement home, but perhaps wish we had more money. We may want to help children, grandchildren or just enjoy our lives a little bit more.

Releasing equity from your home can allow you to do these things and also stay in your home, with a guarantee that there will not be a debt in excess of the value of your home upon death.

Let’s look at an example:-

Background

A husband and wife aim to gift £500,000 to their five children for property purchases.

Their main residence was valued at £1,500,000. Both are retired, in good health, independently wealthy and plan to remain in their main residence for the rest of their lives.

The couple ideally wished to add a cash reserve of £250,000 to the loan in addition to the initial borrowing requirement of £500,000, should they have need for funds in the future.

Solution

The couple took out a loan of £750,000 split between the initial loan of £500,000 and a cash reserve of £250,000.

We met with the couple to confirm their objectives. With a detailed understanding of their requirements we approached multiple equity release (lifetime mortgage) lenders who we considered able to assist for this size of loan and subsequently secured terms.

We discussed the options available and the couple progressed with a lifetime mortgage solution with an interest rate payable of 5.15 per cent per annum and a bank arrangement fee of £600 with the ability to make overpayments of up to 10 per cent per annum.

Outcome

By taking out a lifetime mortgage the couple were able to release £500,000 to be gifted to their children (a potentially exempt transfer) to enable them to purchase their own properties. In doing so the couple will potentially reduce their Inheritance Tax bill by £200,000, payable on the second death should they live for at least seven years. They also released £250,000 for their own use.

Your home or property may be repossessed if you do not keep up repayments on your mortgage. This case study is for information purposes only, and should not be seen as a recommendation on a specific strategy suitable for equity release purposes or IHT tax planning. You should seek independent advice, legal and taxation guidance in relation to your own individual circumstances before embarking on any course of action. In addition, a cash lump sum or income from an equity release scheme may reduce the borrower’s entitlement to certain Social Security means tested benefits. An equity release scheme will potentially reduce the value of the borrower’s estate.

If you would like further guidance on equity release schemes, contact Nigel Smith at Hawsons Wealth Management Limited on 01604 645600 or by e mail

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