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.
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.
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.
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:
You need to ensure you have the appropriate level of buildings insurance.
You will continue to be responsible for paying your Council Tax and other bills.
You will need to maintain your property to a standard acceptable to the Equity Release scheme provider.