Equity release schemes are a process that enables home owners to release tax-free cash from their home in order to boost their finances in later life.
Equity release schemes enable you, the homeowner, to take full advantage of the equity that has built up in your home.
‘Equity’ is the remaining value of your home once any outstanding mortgage has been subtracted.
If you are over 55 years of age and own your own home, an equity release plan could help you in the form of a tax-free cash lump sum, or a act as a regular income for life. What you choose to spend the cash on is completely up to you.
In the UK there are two main types of equity release, including lifetime mortgages and home reversion plans.
Every type of equity release scheme approved by SHIP enable you to:
- Live in your property for life, as long as the property remains your main residence.
- The ability to move your equity release plan to another suitable property without having to incur any financial penalty (subject to criteria).
- Guaranteed that you’ll never fall into negative equity. What this essentially means is that you will never end up owing more than the value of your property, with no debt ever left hanging over your estate.
If you are over 55 and own your own home, equity release could help in the form of a tax-free cash lump sum or an income for life, which you can spend on whatever you like.
How do Equity Release Plans work?
Although there are a number of different equity release schemes available in the UK, they all tend to work on the same underlying principle.
Whether they offer lump sums and/or regular income, they all still lend you a part of your home’s value in return for a share of the proceeds when you die.
In most cases, you will need to be atleast 60 years of age in order to qualify for an equity release plan, along with having no outstanding mortgage, and own a property in reasonable condition.
Advantages of Equity Release
So what are the benefits of equity release?
- Receive a cash lump sum, a regular income or both. The lump sum could run into tens of thousands of pounds, with a regular income boost worth as much as a hundred pounds a month or more.
- No need to move house or sell your property in order to unlock the equity in it. By using a reputable equity release scheme there is a rock solid guarantee that you will be able to continue living in your home until the day you die, and in some cases you’ll still be able to leave some of the property’s value to your family.
- The money that is released from the value of your main residence is free of tax, although it is worth bearing in mind that should you choose to invest the money you may be subject to tax on any income or growth.
- The value of many UK properties means that inheritance tax is no longer something that only rich people have to pay. An equity release plan is a perfectly legal way of mitigating inheritance tax.
Equity release will not suit everyone. It is always worth considering whether funds could be raised affordably from other sources before going down this route.