equity release

bigadaj

bostonerimus wrote: »

I would like more people to pass wealth between generations. The compounding of wealth between generations is even more powerful than compounding during a single lifetime. Of course there is still a general perception in the UK that family wealth is only appropriate for a certain type of person.

Unfortunately for the OP doing equity release comparatively early will result in a big payday for the equity release company and might not leave much money after the debts are paid off.

I disagree with the intergenereational wealth point, inheritance frequently leads to issues around social mobility, lack of incentives and stagnation.

I'm not sure why you think there are particular uk issues, the fallacy of the American Dream is plain to see, the vast majority of wealth in the us is dependent on coming from the right background.

The us is ahead of the U.K. though, you can only become king from one family, whereas there are at least three families you can come from to be president.

Linton

Malthusian wrote: »

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"You can draw on the capital flexibly" is like "you can pay the annual interest so it doesn't roll up and swallow the house". People only do those things in the brochure. In the real world of equity release everyone borrows the maximum and nobody pays the interest. Either you care about what happens to your money after you die or you don't; if the latter it makes no sense to take only some of the money available.
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This sounds rather like the Lamborghini argunent against the pension freedoms - people cant be trusted to use a facility sensibly so it should be banned.

Its simply not true that no-one takes the interest option. ER is a factor in 2 areas - the people with insufficient income for their retirement and those with excess. Those with insufficient income cant use IO. However for those with excess income taking out a lifetime IO mortgage may enable them to convert income to equity so that, for example they can move to a more expensive part of the country where they would like to spend their final 30 years. The only alternative could be to use a significant part of their retirement capital so losing considerable flexibility.

Finally whether one cares about what happens to your money after you die isnt a 0% or 100% matter. You may care to some extent without letting that care completely limit your choices.

This has inevitably diverged from the point I took issue with. The idea that you should care about only yourself and should attach no value to leaving an inheritance (or making gifts in life) is as irrational as its opposite, that you should only care about your inheritance and should attach no value to your own needs.

In this forum the most fruitful discussions are about using financial engineering to achieve an objective. My contention is that ER is a perfectly sensible way of achieving particular objectives and in many cases may be the only way. Whether you or I would approve or condemn people's objectives is irrelevant and any discussion is unlikely to come to agreement. Personally I cant see using the equity in a house is any more reprehensible than using using one's drawdown pot to finance a sybaritic retirement when one could leave it to the relatives.

Linton

DELLBOY wrote: »

could you not sell your home to your children to cover your debts and sign it over to them after your death .A bit like a family funded equaty release ?

This could work for some families, for many others it couldnt as the children may well not have the spare money. There are legal and tax complications. Gifts with reservation, possible large CGT bill for the children when they come to sell, 7 year rule, are the chiildren landlords etc etc and dangers for the parents - divorce/death/bankruptcy of children.

bostonerimus

bigadaj wrote: »

I disagree with the intergenereational wealth point, inheritance frequently leads to issues around social mobility, lack of incentives and stagnation.

I'm not sure why you think there are particular uk issues, the fallacy of the American Dream is plain to see, the vast majority of wealth in the us is dependent on coming from the right background.

The us is ahead of the U.K. though, you can only become king from one family, whereas there are at least three families you can come from to be president.

The US tries to be more egalitarian than the UK, but often fails. I don't leave it out of my criticism about wealth distribution and social mobility. There's a far higher tax free inheritance tax in the US, but the barriers to social mobility are probably higher......although the UK is trying to catch up in areas like university fees and the reduction of social services.

I'm basically for giving people the education and opportunity to save and invest money and then to pass it on to the next generation, with an appropriate inheritance tax. I'd like to see more people using their resources to provide securing for themselves and future generations and not necessarily spending it all on themselves or excessive fees.

Linton

bostonerimus wrote: »

The US tries to be more egalitarian than the UK, but often fails. I don't leave it out of my criticism about wealth distribution and social mobility. There's a far higher tax free inheritance tax in the US, but the barriers to social mobility are probably higher......although the UK is trying to catch up in areas like university fees and the reduction of social services.

I'm basically for giving people the education and opportunity to save and invest money and then to pass it on to the next generation, with an appropriate inheritance tax. I'd like to see more people using their resources to provide securing for themselves and future generations and not necessarily spending it all on themselves or excessive fees.

It seems somewhat inconsistent to encourage a meritocracy where people can advance through education and their own efforts whilst simultaneously creating an economic aristocracy able to live off inherited wealth. Consider the history of the UK landed gentry. Until death duties a small number of families dominated the economic life of the country for centuries. Yes, a few enterprising people were able to make the step up but the numbers were small compared with those who simply inherited a fortune, lived comfortably and passed the wealth on.

I remember a John Major slogan about wealth cascading down the generations, but that also implies poverty cascading down the generations. We are beginning to see this happening now with the increasing importance of parental gifts for first time house buyers. Many of those without wealthy parents could become a "generation rent" unable to help their children make that first step.

Mnd

With regards to the point about taking equity in stages,and that the claim is not many people do this, here is 1 who will be doing exactly that..e.g 20k to bridge wife's early retirement, 15 for car replacement etc

Malthusian

Linton wrote: »

It seems somewhat inconsistent to encourage a meritocracy where people can advance through education and their own efforts whilst simultaneously creating an economic aristocracy able to live off inherited wealth.

Not as inconsistent as encouraging people to advance through education and their own efforts but confiscating all the fruits of those efforts on the arbitrarily-chosen date of their death. "We encourage you to succeed, so you can fund our property portfolios and build statues of us" is not great encouragement for most people.

Sentient people are capable of valuing the future beyond their own lifespan, which means confiscating their assets on the date of their death is just as painful and iniquitous, or marginally less so, as confiscating all their assets at age 70 or age 50 would be.

bigadaj

Malthusian wrote: »

Not as inconsistent as encouraging people to advance through education and their own efforts but confiscating all the fruits of those efforts on the arbitrarily-chosen date of their death. "We encourage you to succeed, so you can fund our property portfolios and build statues of us" is not great encouragement for most people.

Sentient people are capable of valuing the future beyond their own lifespan, which means confiscating their assets on the date of their death is just as painful and iniquitous, or marginally less so, as confiscating all their assets at age 70 or age 50 would be.

Depends on your view of life, and death.


Insisting on leaving large amounts to descendants may be viewed as a kind thing to do, alternatively it could be viewed as the parental opinion being they are incapable of actually looking after themselves and generating their own income and progress.


It seems a very new age opinion to classify death as arbitrary, it is one of the few definites and certainties. The idea that confiscating assets, if that's what you believe it to be, is no less fair at death than earlier is a very bizarre and esoteric opinion.


One area in which the US is hugely ahead of the UK is in philanthropy, hoarding money and not paying taxes is seen as a worthwhile thing to do, in the US at least kudos is given to those donating money to worthy causes, even if there is an element of self interest and showmanship.

Malthusian

bigadaj wrote: »

The idea that confiscating assets, if that's what you believe it to be, is no less fair at death than earlier is a very bizarre and esoteric opinion.

You're free to describe the idea as bizarre but esoteric it is not. Surveys have repeatedly shown Inheritance Tax to be the most unpopular tax around, across all parties, despite the fact that most estates don't pay it.

There is nothing New Age about the idea that there is an external reality which will continue after we are no longer able to observe it.

bostonerimus

Linton wrote: »

It seems somewhat inconsistent to encourage a meritocracy where people can advance through education and their own efforts whilst simultaneously creating an economic aristocracy able to live off inherited wealth. Consider the history of the UK landed gentry. Until death duties a small number of families dominated the economic life of the country for centuries. Yes, a few enterprising people were able to make the step up but the numbers were small compared with those who simply inherited a fortune, lived comfortably and passed the wealth on.

I said that inheritance should be taxed and I don't equate a bit of financial security with an economic aristocracy as that security should be available to everyone. I want to see wealth inequities greatly reduced so I'd like to see university fees eliminated, the NHS better managed and funded, get rid of PFI, re nationalized core industries like power and water. etc. And on the other side of the equation people should be encouraged to be fiscally prudent and given the tools (through education and legislation) to save some money and maybe even pass some on. The UK has done a great job in providing ways to save tax efficiently, but it has done a poor job in democratizing investing as it is still largely controlled by "The City", it's cohorts and it's attitudes that see money as something that ordinary people shouldn't really have and if they do have it then they are entitled to their cut of it.