Complicated Equity Release

BigAshB

My parents were Tennants in Common and their mortgage is fully paid off.

My mum died and left my sister and I her share, so now the house is owned 50% by my dad and 25% each my sister and I.

My dad still lives in the house, with a live in carer.

We need to release equity to pay for my dad's care costs and my sister and I would like to release equity to spend on our own homes, but we are both under 55.

Is it possible for all of us to release equity, either through Lifetime Mortgage or Home Reversion?

It's further complicated by my sister having EPA for our dad. 

MWT

No, equity release is not an option for you.

Even if you were over 55 it would still not be possible as it generally requires those on the deeds to be resident in the property at the point when it is setup.

It could have been done before your mother died, she could still have left her share to the two of you, but it would have frozen any remaining amount in a drawdown account, and prevented further lending at the point of her demise.

It cannot be done at this time though.

 

dimbo61

Just be aware you may have to pay Capital Gains Tax when you do sell the property as you don't live there and the CGT will be on the increase in value from your mum,s death to when you sell the house 

Keep_pedalling

Did your mother leave you half outright or does your father have a life interest in her half? A solicitor would normally recommend the latter as it would give your father greater security and would avoid the CGT issue mentioned above. 

The only way I can see you father being able carry on having a live in career would be for you and your sibling to gift him your share so he become the outright owner so he can raise some equity to carry on otherwise you may be looking at residential care instead. This could be done through a deed of variation if your mother died within the last 2 years.

MWT

Keep_pedalling said:

The only way I can see you father being able carry on having a live in career would be for you and your sibling to gift him your share so he become the outright owner so he can raise some equity to carry on otherwise you may be looking at residential care instead. This could be done through a deed of variation if your mother died within the last 2 years.

I did consider that, but it does of course put the entire value of the property back in play as a resource to support the care needs of the father with no way to ring-fence any of that value which was presumably at least one reason why the parents structured things as they did...

Without some numbers it is impossible to know if there would be IHT implications from that sort of action as well, but yes, that is pretty much the only way to use ER to access any of the value in the house.

If this was done it would be advisable to only use the funds released for the care of the father, any thoughts about him gifting any of that to the siblings for their own home improvements would be very unwise given they are well past any ability to avoid deprivation of assets claims given the existing need for carers, and the EPA of course...

ACG

Just a thought, but could your dad not raise the money in his name, putting the full property in his name. 
He can give you some of the money he raises.

Its not my area of expertise, I have no idea if this would incur extra stamp duty or anything but it might be a work around? 

MWT

ACG said:

Just a thought, but could your dad not raise the money in his name, putting the full property in his name. 
He can give you some of the money he raises.

Its not my area of expertise, I have no idea if this would incur extra stamp duty or anything but it might be a work around? 

It would be highly risky to distribute any of the cash raised from this while the father is still needing care as it would be a clear example of deprivation of assets if the cash runs out again, as they are already well past the point where there is any doubt about the need for care... also the EPA responsibilities would seem to be in conflict with any distribution which reduced the assets available for his care once the property is full in his name...

So much depends on the actual values being contemplated, and to be blunt, a reasonable estimate of how long care may be needed...

If this is a £2m+ house with care expected to continue for a limited time then it may be possible to do exactly as you suggest, including cash distribution to the siblings.

This is one for an IFA though as there are going to be IHT considerations, especially if there is no ability to do this by a deed of variation.

If this is a more modest property then it all changes... 

BigAshB

Thank you all for your replies. 
We're going to employ a specialist IFA, but from what you've all said, I gather that my sister and I's equity is essentially locked in until the property is sold.
Looking at lifetime mortgages, they can be for a % rather than the whole value of the property, so that might be an option for releasing some or all of dad's share to pay for care.
The EPA prevents some of what has been suggested, but those ideas are still food for thought. 

MWT

BigAshB said:

Looking at lifetime mortgages, they can be for a % rather than the whole value of the property, so that might be an option for releasing some or all of dad's share to pay for care.

Good that you are taking advice, but on this specific point, given the property is in multiple names, you can't mortgage only the part owned by one person, the mortgage is against the whole property and all owners have to meed the requirements of the mortgage product.

You can however protect a percentage of the property from being considered to preserve a portion for inheritance for example, which results in proportionately lower amounts being released, but the starting point still requires the property to be in the name(s) of those actually living there and being able to qualify for the product. 

... and once it is back in just his name then ultimately you cannot protect any part of the value from been assessed as part of his assets when it comes to care costs...

ACG

MWT said:

ACG said:

Just a thought, but could your dad not raise the money in his name, putting the full property in his name. 
He can give you some of the money he raises.

Its not my area of expertise, I have no idea if this would incur extra stamp duty or anything but it might be a work around? 

It would be highly risky to distribute any of the cash raised from this while the father is still needing care as it would be a clear example of deprivation of assets if the cash runs out again, as they are already well past the point where there is any doubt about the need for care... also the EPA responsibilities would seem to be in conflict with any distribution which reduced the assets available for his care once the property is full in his name...

So much depends on the actual values being contemplated, and to be blunt, a reasonable estimate of how long care may be needed...

If this is a £2m+ house with care expected to continue for a limited time then it may be possible to do exactly as you suggest, including cash distribution to the siblings.

This is one for an IFA though as there are going to be IHT considerations, especially if there is no ability to do this by a deed of variation.

If this is a more modest property then it all changes... 

Good point.
But could it be argued that if they take a lump sum now of say 20% each, that is less than the 25% they currently have? I dont know the answer, just trying to look for potential options. 

100% not my thing, I am not qualified in financial advice, long term care, equity release or anything even remotely linked to this. So just to be very clear I am probably more of a layman on this than anyone. 

MWT

ACG said:

Good point.
But could it be argued that if they take a lump sum now of say 20% each, that is less than the 25% they currently have? I dont know the answer, just trying to look for potential options. 

100% not my thing, I am not qualified in financial advice, long term care, equity release or anything even remotely linked to this. So just to be very clear I am probably more of a layman on this than anyone. 

Between an IFA and a solicitor it may be possible to come up with a way of selling the 50% back to the father in exchange for a payment to be funded in part with cash from ER and in part from the residual proceeds upon sale of the property when that is triggered by the terms of the equity release. CGT will of course be a factor so work for both IFA and solicitor in this...

Going to have to be a careful navigation between the requirements of the lender, so probably no charge on the property, and the obligations of the EPA.

So unless the property has significant value it may not be worth the expense..

This sort of situation is perhaps not made clear to people when they are being advised to 'protect' the assets from care fees by this sort of arrangement, as the flip side is that they are restricting the ability of a surviving partner to use the assets for their own care, as in this this case...