Releasing capital in retirement

Many people wish to free up equity in their homes.  One of the ways to achieve this is through Equity Release Schemes.  These have become ever more popular as an alternative to downsizing for the purposes of raising capital for a variety of reasons including repayment of an existing Mortgage; boosting income in retirement as a consequence of low interest rates on savings; and releasing cash for any other reason including assisting children in purchasing their own homes.  A popular variety of Equity Release Scheme is the Lifetime Mortgage.

One of the main advantages of a Lifetime Mortgage is that it effectively converts equity in your main residence into a tax free fund.  It may also reduce Inheritance Tax liability following death.  Most Equity Release Plans come with multiple guarantees allowing the borrower to remain in occupation for life or until the borrower/s enter into long-term residential care.  The cash flow advantage is that no monthly repayments are made during your lifetime because the loan is repaid following the sale of the family home once it no longer becomes the primary residence.  Most loans raised for the purposes of Equity Release are transportable and can be moved from one property to another provided sufficient equity remains in the property which is replacing the first security.

Needless to say, you should in the first instance consult your accountant and/or financial adviser with regard to the suitability of such a plan having particular regard to your own financial requirements.

There are a number of different types of lifetime Mortgages including:-

  1. Roll-up lifetime mortgage  in which event you would receive a tax-free lump sum to spend as you wish once any existing Mortgage had been repaid.
  2. Drawdown lifetime mortgage  This works similarly to a roll-up, but you can keep a portion of your equity in an interest free reserve to use as and when required.
  3. Flexible lifetime mortgage  This plan will enable you to make voluntary repayments of up to 10% of the outstanding balance in each year without penalty.

We have acted for a number of clients who have entered into an Equity Release Scheme.  However, since we are not tax advisers, we would strongly advise you to discuss this matter in the first instance with a financial expert.

 

E B GROWER

Managing Partner