Equity release issues?

nimac20

Hi

My parents have an interest only mortgage of £30k - long story!!! The mortgage term ends this year and an IFA has advised going down the equity release route to repay the mortgage, plus they want to raise £30k of cash on top of that. They want to gift me and my brother some cash plus get a new car for themselves.

After a bit of googling about the implications for them and us i thought i would ask on this forum for a bit of advice.

Firstly, will my parents income be affected? - they have a state pension each, my dad has a private pension and my mum gets DLA, she is 69 and has dementia.:sad: They dont get any other assistance because of the private pension.

Secondly, if i was gifted £10k for example, will i be taxed on that and do i have to declare it as income to HMRC?

Thirdly, is there anything i may have forgotten?

Thanks for nay help and advice.

mr_munchem

Hi

If your parents were to die within 7 years of the date of the gift, then it would come under IHT. Apart from that I don't know anything else I'm afraid!

nimac20

Thanks!!

There will only be about the most £100,000 inheritance spilt between me and my brother, will this be taxed under IHT, i read that it only affects inheritances over £350,000 or so?

Crater

I came to the forum looking for advice on equity release and it's a most difficult and unpopular subject, there are few responses about it, so I don't know anything, but I reckon you should start looking at https://www.moneyadviceservice.org.uk/en/articles/lifetime-mortgage and other articles on that site even though your family wants to raise money for other reasons. NB the Which note about the payback cost of a rolled up equity release doubling in 11 years (also taking into account that interest rates may be about to start rising).

suzannestaite

So to clarify on this subject if a parent was to equity release then pass the money onto a dependant, this money would be taxed if the parent were to pass away within 7 years?

dunstonh

suzannestaite wrote: »

So to clarify on this subject if a parent was to equity release then pass the money onto a dependant, this money would be taxed if the parent were to pass away within 7 years?

Correct if the estate is over the nil rate band.

fwor

IMO it would be a very bad idea - from a financial point of view - to borrow money on equity release to give to those who will be inheriting anyway. Because when looked at in those terms, it can be a ~very~ expensive way to borrow money.

If I were you I would ask for some illustrative figures to show how much will be repaid to the equity release provider, given some realistic examples of how long your parents may live.

I suspect that you will find that the equity release will very quickly wipe out your inheritance completely.

Sea_Shell

They could also fall foul of the "Deprivation of assets" rules, if your mum, with dementia, needed residencial care in the future.

Mnd

I don't have a problem with the idea of equity release, but we are in a different position to you in as much we don't have to worry about inheritance.
If your parents intend to bequeath you and your brother their estate then I would try to avoid this route as there will be interest rolling up onto the original amount borrowed, so this may well rule this out.

suzannestaite

thanks for your responses. we are thinking of paying any interest off monthly so use equity release rather than a mortgage so we had options if we decide to move without incurring early release fees. my worry is that if parents property was worth 350k and 130k had been equity released to pay off our mortgage then my remaining parent passed away within 7 years would we be taxed due to the equity release being gifted to us? ie over the 3k yearly allowance?

silvercar

suzannestaite wrote: »

thanks for your responses. we are thinking of paying any interest off monthly so use equity release rather than a mortgage so we had options if we decide to move without incurring early release fees. my worry is that if parents property was worth 350k and 130k had been equity released to pay off our mortgage then my remaining parent passed away within 7 years would we be taxed due to the equity release being gifted to us? ie over the 3k yearly allowance?

It would be inheritance tax (potentially) as the money would be considered still part of their estate.