Equity Release, Colchester, Essex

Uses of Equity Release in inheritance tax planning

Equity release is a kind of mortgage that can be placed on your property to release capital from this asset.

Equity release works by a lender assessing your property value and your age, and then allowing you to borrow up to a maximum amount against the value of your house. Equity release therefore allows you to withdraw money from your home - often your most valuable asset.

Of course, there is a catch with equity release. There are charges involved with the transaction. Often you will be required to pay the usual charges associated with a mortgage product - valuation fees, solicitor's fees etc. There will also be interest to pay. Usually with equity release this involves rolling up the interest each year against the remaining equity in the property (usually with a guarantee that you will never fall into negative equity).

This interest, plus the original loan taken when the equity release contract was started, will be payable on death or when you decide to redeem the loan, perhaps when the property is sold.

Uses of equity release in inheritance tax planning

Equity release is a useful way of removing capital from an often valuable house. A typical example of equity release is with a house worth perhaps £350,000. This takes the owner over the inheritance tax threshold. By the release of £100,000 of this equity into cash, this money can be invested into a trust so as to remove this money from the person's estate, and therefore save inheritance tax on death.

This use of equity release is a neat way of reducing your inheritance tax bill, with a problematic asset such as your family home.

However, due to the charges involved with equity release, this contract is not for everyone. However, it is worth considering if your home is valuable and you want to avoid inheritance tax while remaining living in the property.

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Equity release should only be approached with qualified financial advice. If you are interested in this idea, please contact us.