There are many reasons people throughout the UK choose to release equity from their home, one of which is the goal to help and support their family financially.
From helping to fund university fees, to gifting money to help family members get onto the property ladder, equity release can help you release tax-free funds from your home.
Understanding equity release
If you’re looking to release equity from your home, it’s important to understand if you are eligible and the impact equity release can have on your life. An adviser can help you through this, explaining everything you need to know along the way and answering any questions you or your family might have.
To be eligible for equity release you must be aged 55+ and own your own home in the UK worth £70,000 or more.
The amount of equity in your home is equal to the value of your home, minus any outstanding mortgage or loan secured against your home. The amount of equity you can release can also be impacted on a few factors including your age, health and property type.
Equity release is a long-term loan secured on your home, where you will have no obligation to repayments during the lifetime of the loan, but interest will continue to build up.
It’s important to consider that equity release will reduce the value of your estate and can affect your entitlement to means tested benefits. Your financial adviser will discuss this in detail during your consultation.
Types of Equity Release
The two main types of equity release include lifetime mortgages and home reversion plans, both of which come with their own pros and cons.
Lifetime mortgage
Lifetime mortgages are the most popular type of equity release product. A lifetime mortgage is a loan secured against your home and allows you to release equity from your home as a tax-free lump sum or in a drawdown facility with multiple smaller lump sums. You will maintain ownership of your home and your loan will be repaid, in addition to any interest that has compounded, when you pass away or move into long term care.
Home reversion plan
A home reversion plan involves selling part, or all of your home to a provider, but this type of equity release is less common. You will not be charged interest with a home reversion plan, however you will not own all of your property.
Should I release equity to help my family?
Equity release is a big decision and should not be rushed. At Bower Home Finance, we encourage you to include your family in your meetings with our advisers so any questions you or your family might have can be answered.
If you’re considering releasing equity to help your family, it could be to help fund their university fees or help them get onto the property ladder, but it’s important to consider how equity release will impact you and your circumstances.
Releasing equity from your home to help your family could provide you with a way to support your family without the risk of losing your property or savings. However, you could also be giving away funds you might need in the future or impacting your eligibility for means tested benefits.
If you’re looking for flexibility, equity release may be able to offer that with a drawdown facility to access further funds in the future, however, releasing equity from your home reduces your estate and can therefore reduce the amount of inheritance for family members in the future.
Our specialist equity release adviser will discuss your options and help you consider the impact taking out equity release may have on your lifestyle.
Do you pay capital gains tax on equity release?
When releasing equity from your home, the funds you release are not taxable. This means you will not need to pay income tax or capital gains tax on it, and you are free to spend your tax free cash as you wish.
However, if you are choosing to use your equity release to gift money to your friends or a family member, inheritance tax may need to be paid. The amount of tax that may need to be paid will depends on how long you live after the gift and the amount gifted.
Your equity release adviser will discuss the implications equity release and using this to gift to friends and family.
Considering the alternatives to equity release
With property values on the rise, it’s no surprise that the young people in our lives may need a helping hand getting on the property ladder. However, equity release isn’t always the right option.
We all wish to see our families succeed, which is why many parents in later life are choosing to help their children buy their first homes through various options and whilst equity release could provide you with the funds to do so, it’s important to consider the alternatives to help first time buyers.
The alternatives to equity release can include:
- Taking out a joint mortgage with your child or guaranteeing a mortgage
- Downsizing your current property to release equity
- Remortgaging your home
It’s important to consider the implications of giving money to help your child buy a home, including how this may impact their choice of mortgage. Some mortgage providers do not accept gifted deposits so it’s important to speak to a mortgage adviser about their options.
Our advisers will never recommend equity release if it will negatively impact your personal circumstances or if there are better suited alternatives.
Speak to your local equity release adviser today
Equity release can be a great option to support your loved ones, however, it’s essential to understand the benefits, risks, and how this will impact your personal circumstances.
Our specialist advisers will discuss your financial options, providing expert advice, whilst taking into consideration your goals and which options are suitable for you. Offering whole of market advice, our advisers can compare equity release products from across the market, so you aren’t limited on options.
Get started today and find out how money tied up in your home you could release with our free online equity release calculator.
