Home Reversion Plans

Home Reversion Plans

A Home Reversion Plan enables you to release equity in your home by agreeing to sell a proportion of your property to a Home Reversion Plan company. In exchange for the company owning a proportion of your property, you can receive a tax free lump sum or an income.

How Much Of Your Home Do You Receive?

The amount of money you receive from a Home Reversion provider will always be less than the full market value of your property. You will continue to live in your home until you move into care or die. You will be a tenant and pay a rent which could be a nominal amount.

How Much Of Your Home Do You Sell?

You do not need to sell all of your property in order to release equity with a Home Reversion Plan. But how much you receive will depend on a number of factors including the value of your home.

Features of A Home Reversion Plan

Releasing More Money From Your Home

Depending on the amount of equity left in your home and prevailing property prices, it may be possible to release additional money from your home. This can be achieved by increasing the rent you pay to the Home Reversion Provider.

Often you can release more equity from a Home Reversion Provider than you can from a Lifetime Mortgage.

Impact On Your Estate

Some Home Reversion companies provide a Minimum Inheritance Guarantee which guarantees that some money will be paid to your beneficiaries if you move into a care home or die.

Advantages of a Home Reversion Plan

The advantages of taking out a Home Reversion Plan are:

Guaranteed Occupancy

Home Reversion plans entitle you to remain in your property for as long as you are able because this form of equity release scheme is based paying back your loan when you leave your home and it is sold.

Zero or No Interest Payments

The only interest payments you will have to make might be for a rent – and this is likely to be a ‘peppercorn’ rent for a nominal amount.

Benefit From Property Price Rises

If you opt for a Home Reversion Plan that is for a proportion of your home – not the full amount – then you will be able to benefit from increases in the value of your property. Conversely, your property price will fall if the market is falling.

Reduced Inheritance Tax

The proportion of your property that is owned by the Home Reversion company will not be included in your estate for inheritance tax purposes. The current rate for inheritance tax is £325,000 per person (and you can transfer your rate to your spouse).

Disadvantages of a Home Reversion Plan

You Will Receive Less Than Your Home Is Worth

Home Reversion schemes pay less than the full market value of your property and so you will suffer an immediate reduction in total value of your estate.

Lose Eligibility To Means Tested State Benefits

By receiving an income or cash lump sum from which you draw income, you may lose entitlement to some means tested State Benefits along with other grants, eg home improvements for insulation, etc.

Your Home Might Not Be Eligible

Some homes are not suitable for equity release using a Home Reversion plan. Examples include:

  • The tenure of your property must be freehold or leasehold – and the lease must have a long term remaining.
  • Holiday homes are unlikely to be eligible
  • Buy-to-Let properties may not be eligible

Your Estate Will Be Worth Less

By selling a proportion of your home to a Home Reversion company, you will be reducing the value of your estate when you die which means there will be less to pass onto the beneficiaries of your estate.

Equity Release Considerations

Equity Release Considerations

Equity Release Considerations

If you are thinking about an Equity Release scheme, there are a number of issues you should consider:

Effects On Your Means Tested State Benefits

Releasing equity from your home is likely to produce a substantial sum or income that may affect your entitlement to means tested state benefits.

State benefits that are means tested are assessed according to the amount of money you have available. If you have regular income that results from an equity release scheme, you might find that this income makes you in eligible to receive free – for example assistance with care home fees.

Deliberate Deprivation

You should also be careful about giving away money from your equity release scheme to your friends or relatives. This can also affect your future eligibility for assistance with care home fees because giving away money on this basis may be deemed as deliberate deprivation.

Reduce The Amount In Your Estate

Using the money from an Equity Release plan could reduce the amount you will be able to bequeath to your beneficiaries when you die. This is because part of the equity left in your house will belong to the Equity-release Company and will therefore be outside of your estate.

Impact on Inheritance Tax

Inheritance Tax is charged on the amount of your estate that exceeds the Nil Rate Band, which is currently £325,000 per person. Any amount above the Nil Rate Band is currently taxable at 40%.

An Equity Release Scheme will reduce the value of your estate so it can help to reduce your total Inheritance Tax liability.

Your Health And Life Expectancy

The underwriting of Equity Release schemes mean that, the older you are, the larger the amount of money you are likely to receive. Providers take into account your health and lifestyle when assessing the maximum amount to lend, and factors such as smoking or medical conditions influence the maximum amount that is lent.

Moving Home

Most Equity Release scheme will allow you to transfer your arrangement to another property. If the value of the property to which you move is lower, you will usually have to repay part of your Equity Release mortgage from the proceeds.

Moving To Retirement Housing

You should be aware that you are unlikely to be able to transfer your plan if you are moving to retirement housing. Where this is the case, all of the proceeds from the sale of your property may have to go to the plan provider. This may result in you not having sufficient funds left to complete the purchase of your new home.

Early Redemption

Where Lifetime Mortgages are concerned, you may find that you will not be able to transfer it to a new property which means that you will have to repay it if you want to move. This may mean paying Early Repayment Charges.

Costs of Arranging Equity Release

You should always take into account the costs and fees of setting up an Equity Release plan. The extent and value of the costs will vary according to which provider you choose but will include the following:

  • Arrangement fees which are paid to cover administration costs
  • Valuation fees for your property. These vary according to the value of your property and some providers offer free valuations.
  • Solicitors’ fees which cover components such as searches, fund transactions, etc.

Ongoing Costs Of Equity Release

If you commit to an Equity Release scheme, there will be some other costs that you should consider:

Buildings Insurance

You need to ensure you have the appropriate level of buildings insurance.

Council Tax

You will continue to be responsible for paying your Council Tax and other bills.

Property Maintenance

You will need to maintain your property to a standard acceptable to the Equity Release scheme provider.

Summer Budget 2015

Here is a summary of the main points of the Summer 2015 Budget.

Tax Rates

Income Tax – 2016/17

The basic personal tax-free allowance will be in increased to £11,000 (restricted for income in excess of £100,000). This will increase further in 2017/18 to £11,200.

The first £32,000 of taxable income is to be taxed at 20% (other than dividends – see below)

The next £118,000 is taxable at 40% (or 32.5% for dividends). The balance over £150,000 is taxable at 45% (or 38.1% for dividends).

Dividend Taxation

The government will abolish the Dividend Tax Credit from April 2016 and introduce a new Dividend Tax Allowance of £5,000 a year. The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

Rental Property Expenses

The amount of tax relief on mortgage interest for rental properties will be restricted to the basic rate of tax. This will be phased in over 4 years starting in 2017/18 so that it takes effect by 2020/21.

Wear and Tear allowance will be replaced from April 2016 with a new relief which allows the actual cost of replacement furnishings to be deducted by all residential landlords.

National Living Wage

The Summer Budget introduces a new National Living Wage for over 25’s from April 2016. This will initially be £7.20 per hour and the intention is to increase this to £9 per hour by 2020.

Tax Rates For Savings

A new personal savings allowance will be introduced whereby the first £1,000 of interest received on savings will be tax free for basic rate taxpayers. A reduced £500 allowance is available for higher rate taxpayers.

Pensions

From 6 April 2016, restrictions will be placed on the benefit of pension tax relief for people with income of over £150,000 (including the value of any pension contributions) and those with income in excess of £110,000 (excluding pension contributions).

This annual allowance of £40,000 will be tapered by reducing the allowance by £1 for every £2 that the individual’s income exceeds £150,000. A maximum restriction of £30,000 can apply to bring the annual allowance down to a minimum of £10,000.

Employment Allowance

The Employment Allowance, that is schedule to be introduced from April 2016, will be increased from £2,000 to £3,000.

Inheritance Tax

The inheritance tax threshold has been increased to allow £1m homes to be passed down to children after death to be free of tax.

From 2017, there will be a new £175,000 allowance on homes left to children or grandchildren. The new allowance is in addition to the existing £325,000 threshold which will be fixed until the end of 2020-21, he said. Both allowances can be transferred to your spouse or partner.

PLEASE NOTE THAT WE HAVE TAKEN EVERY EFFORT TO ENSURE THE INFORMATION IS ACCURATE BUT NO RESPONSIBILITY CAN BE ACCEPTED IF YOU DECIDE TO ACT ON THE INFORMATION WITHOUT TAKING PROFESSIONAL ADVICE.
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