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    • nimac20
    • By nimac20 18th Jan 18, 7:54 PM
    • 16Posts
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    nimac20
    Equity release issues?
    • #1
    • 18th Jan 18, 7:54 PM
    Equity release issues? 18th Jan 18 at 7:54 PM
    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. 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.
Page 1
    • mr_munchem
    • By mr_munchem 18th Jan 18, 7:58 PM
    • 95 Posts
    • 33 Thanks
    mr_munchem
    • #2
    • 18th Jan 18, 7:58 PM
    • #2
    • 18th Jan 18, 7:58 PM
    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
    • By nimac20 18th Jan 18, 8:01 PM
    • 16 Posts
    • 0 Thanks
    nimac20
    • #3
    • 18th Jan 18, 8:01 PM
    • #3
    • 18th Jan 18, 8:01 PM
    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?
    • Shamsan
    • By Shamsan 9th Feb 18, 12:26 AM
    • 140 Posts
    • 18 Thanks
    Shamsan
    • #4
    • 9th Feb 18, 12:26 AM
    • #4
    • 9th Feb 18, 12:26 AM
    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).
    Last edited by Shamsan; 09-02-2018 at 12:30 AM.
    • suzannestaite
    • By suzannestaite 9th Feb 18, 12:38 PM
    • 8 Posts
    • 0 Thanks
    suzannestaite
    • #5
    • 9th Feb 18, 12:38 PM
    • #5
    • 9th Feb 18, 12:38 PM
    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
    • By dunstonh 9th Feb 18, 12:49 PM
    • 92,639 Posts
    • 59,953 Thanks
    dunstonh
    • #6
    • 9th Feb 18, 12:49 PM
    • #6
    • 9th Feb 18, 12:49 PM
    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?
    Originally posted by suzannestaite
    Correct if the estate is over the nil rate band.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • fwor
    • By fwor 9th Feb 18, 1:20 PM
    • 5,995 Posts
    • 4,050 Thanks
    fwor
    • #7
    • 9th Feb 18, 1:20 PM
    • #7
    • 9th Feb 18, 1:20 PM
    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
    • By Sea Shell 9th Feb 18, 1:34 PM
    • 723 Posts
    • 1,010 Thanks
    Sea Shell
    • #8
    • 9th Feb 18, 1:34 PM
    • #8
    • 9th Feb 18, 1:34 PM
    They could also fall foul of the "Deprivation of assets" rules, if your mum, with dementia, needed residencial care in the future.
    " That pound I saved yesterday, is a pound I don't have to earn tomorrow "
    • Mnd
    • By Mnd 9th Feb 18, 8:48 PM
    • 503 Posts
    • 607 Thanks
    Mnd
    • #9
    • 9th Feb 18, 8:48 PM
    • #9
    • 9th Feb 18, 8:48 PM
    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
    • By suzannestaite 11th Feb 18, 2:17 PM
    • 8 Posts
    • 0 Thanks
    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
    • By silvercar 11th Feb 18, 2:28 PM
    • 37,232 Posts
    • 156,857 Thanks
    silvercar
    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?
    Originally posted by suzannestaite
    It would be inheritance tax (potentially) as the money would be considered still part of their estate.
    • silvercar
    • By silvercar 11th Feb 18, 2:30 PM
    • 37,232 Posts
    • 156,857 Thanks
    silvercar
    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.
    Originally posted by fwor
    Agree with this. They are paying interest/ loosing money from their estate in order for you to receive the money earlier than would otherwise be. Far more sensible for you to take a mortgage now.
    • Keep pedalling
    • By Keep pedalling 11th Feb 18, 2:49 PM
    • 4,995 Posts
    • 5,559 Thanks
    Keep pedalling
    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.
    Originally posted by fwor
    In cases like this the priority should be the financial well being of the parents, so inheritance should be a secondary consideration. They have to pay off the I/O mortgage or they lose the house. In this situation ER may be the only option, although I would limit the amount taken to cover the mortgage and the parents immediate needs and perhaps an emergency fund if they dont already have one.

    Taking more out for the children is not a great idea. The equity in the home will not be touched by any care costs should the OPs mother need to go into residential care (providing her spouse remained living there), but liquidating it would be considered an asset that could be used to self fund even if it was passed to the children.
    Last edited by Keep pedalling; 11-02-2018 at 2:51 PM.
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