Islamic offset mortgage

Pincher

This is just something I made up.

I don't want the rip off kind of Equity Release, but would really like an offset mortgage, till I die ( mort = death, how appropriate ) and avoid some tax.

On Probate, capital gains is reset to zero. If I sell a BTL property while I am alive, for £1million, I would have to pay capital gains tax on the gain, say £800k. If I die, the £1million is free of capital gains tax, but subject to 40% inheritance tax; out of the 28% CGT frying pan, into the 40% IHT fire.

So, I would like to have an offset mortgage style loan, so I can spend the equity without incurring capital gains, and build up a debt of £700k by the time I die. The executor sells the property for £1million, free of capital gains tax, pays off the £700k debt, so there is only £300k left in the estate. I would have to rent in my last years, otherwise the main residence is another asset that gets hit with IHT.

Being a BTL setup, it is generating an income stream, and so can go towards paying interest, partially or fully, on the loan that is building up.

I was wondering how an Islamic bank could structure such a scheme, as they can't receive interest. Rolling up interest, so it's paid for by the sale of the property at the end, is actually precisely what I want, as it wipes out more of the asset, reducing inheritance tax. Not at the 5%+ that Equity Release schemes want, thank you very much.

To cover any possible shortfall, there is scope for an insurance product that pays out, to protect the lender.