Equity Release Examples:
Example A:
(Need for cash and additional income)
- Married couple, youngest aged 70
- Property worth £250,000
- Little or no savings but have pension income of £7,000 p.a.
- Desire to spend money on home improvements and enhance income
The Solution:
- Release £17,500 lump sum, and an additional monthly "income" of £325
pm using a suitable Lifetime Mortgage plan.
- £17,500 spent on essential home improvements.
Outcome:
- Home is improved, increasing its value and its enjoyment by its
owners.
- The monthly "income" actually comprises a series of small loan
increments. This carries no income tax, and the loan grows much slower than
if a large lump sum is taken at outset.
- Lifestyle is enhanced.
- Note: It is important to check the effect
such a plan might have on your eligibility for State Benefits.
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Example B:
(Planning for IHT Mitigation - assumes the husband predeceased
the wife and she has both Nil Rate limits available to her):
- 65 year-old widow
- Property valued at £600,000
- Value of total estate is £934,000
- Current IHT liability would be £124,000
- Intends to leave assets to her two children
- Wants to pay as little tax as possible
- Does not wish to sell her home
The Solution:
- Lifetime Mortgage creates £180,000
- The £180,000 is gifted to her children
- Children invest the £180,000 in an Investment Bond and this remains
invested during their mother's lifetime
The Effect if no action had been taken:
- After ten years the value of the estate could be £1,520,000 (assuming
5% growth p.a.)
- The potential IHT liability could now be £288,000
(assuming the IHT nil rate band increases by an average of 2.5% p.a. to £400,000
per person) i.e. a net estate of £1,232,000.
The Effect if Equity Release was used:
- After ten years, the value of the estate is reduced by the loan plus
interest (£354,000)
- This results in a reduced IHT liability of £146,400
- Tax of £141,600 has been saved
- The net estate is therefore £1,019,600
- The value of the Insurance Bond is now £293,000*
- The total value of the net estate and the Bond has increased by
£80,600
(assumes loan interest at 7% and net Bond growth of
5%)
The equity release products may involve lifetime mortgages
or home reversion plans. If so, to understand their features and risks,
ask for a personalised illustration.
There will be a fee for mortgage advice. The precise amount will
depend upon your circumstances but we estimate it will be £750.
   
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