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Where Taxpayers and Advisers Meet

Equity Release within the family

KeepItInTheFamily
Posts: 2
Joined: Tue Nov 17, 2020 7:20 pm

Equity Release within the family

Postby KeepItInTheFamily » Tue Nov 17, 2020 7:36 pm

Hi

My parents would like to raise about 25% of the house value as equity release. They are well and active and aged 87 and 80. We have a good financial adviser helping steer the process and do it appropriately as a lifetime mortgage with a fixed interest rate of 2.46% interest that would accumulate on a rolling basis.The money raised would be invested in stocks and shares to help them draw down if care in the home becomes needed etc in the future.

It struck me that my husband and I could be the equity release provider? Could we set up a legal agreement with a lawyer and loan them the money they are looking for? This would then give them the capital liquidity they need AND

a) We would get the benefit of it for the longer it was in place as the value cumulates year on year (not a bank)
b) We have a guaranteed financial return on our investment with no running costs (the stock market has to do better than 5.5% per annum to beat this arrangement with a bank to cover costs and interest) but we are also saving that money from paying a bank out of my parents estate so even better in the longer term)
c) We have no additional wealth to declare for any wealth tax should that come to pass as it is a debt but just pay CGT on the final gain and the gain comes to us not to some bank. We would pay CGT anyway on gains with the money that is currently invested in shares.
d) We could draw up a legal contract for this Equity release with a lawyer so we could vary the interest rate from time to time as may be appropriate if there is inflation and/or property values fall
e) We could also see if it was advisable to fund an equity release based on % of property value at time of sale etc if that seems a better way to go
f) If they needed more in the future, they could set up another equity release for the difference with a bank or we give a further equity release tranche, whatever looks most appropriate at the time

However I have no idea how this is correct? Grateful for comments!

bd6759
Posts: 3346
Joined: Sat Feb 01, 2014 3:26 pm

Re: Equity Release within the family

Postby bd6759 » Thu Nov 19, 2020 10:33 pm

Presuming you will inherit the house anyway, I really don’t see the point. Why not just give your parents some money. The end result is the same.

KeepItInTheFamily
Posts: 2
Joined: Tue Nov 17, 2020 7:20 pm

Re: Equity Release within the family

Postby KeepItInTheFamily » Fri Nov 20, 2020 10:36 am

Thanks for the response. The purpose is to lower IHT exposure and to ensure the money we give grows in value - we don't have a lot of money but could free up some investments to do this.

bd6759
Posts: 3346
Joined: Sat Feb 01, 2014 3:26 pm

Re: Equity Release within the family

Postby bd6759 » Sat Nov 21, 2020 1:56 am

All you will be doing is freeing up your investments and giving the money to your parents to invest instead. It’s not likely to grow any more in their name than in yours.

Your proposal will have no effect on IHT.


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