In recent years, there has been growing demand for equity release as a financial planning tool. Shifting demographics, changing financial needs, and the desire for financial flexibility in retirement have all driven this.
Equity release allows homeowners aged 55 or over to access their property’s wealth while staying in their home. It’s essentially a way to turn a portion of your home’s value into a lump sum. The two primary forms of equity release products are lifetime mortgages and home reversion plans.
Importantly, equity release can also be a pivotal tool in financial planning. It can provide a role in protecting one’s estate and mitigating inheritance tax.
A quarter of adults who own a home would consider using equity to support their financial position later in life. Over a third would use the money to boost their retirement pot. 15% would use the money to support children onto the property ladder.
Finding additional funds for later life is a challenge more are facing, and equity release presents a viable solution.
The world is experiencing a significant increase in the aging population. On average, we live until we are 80 years old. Just 40 years ago, men lived until their early 70s, and women until their late 70s.
As we are living longer, many retirees find themselves asset-rich but cash-poor. Equity release offers a way for these individuals to access the value tied up in their homes.
Shifting retirement landscape
Aligned with an aging population, we all need to have much more in our pensions to live comfortably. This is leaving retirees more reliant on their own savings and assets. A comfortable retirement income per year is around £40,000. For someone who retires at 65 and lives until they’re 80, this means having a pension pot of around £1m.
While possible to build up if started early, we know that this isn’t always feasible. However, there are other ways to supplement retirement income, one being equity release.
Rising property prices
Property values have consistently appreciated over time. This upward trend has led to many homeowners having a substantial amount of wealth tied up in their homes. The more equity available in a home, the more an individual can potentially release.
Equity release doesn’t just enable you to boost your finances. When used strategically, it can also enable homeowners to mitigate inheritance tax; a usually overlooked benefit.
When people die, the government taxes their money and possessions if they are worth more than £325,000. This is also known as inheritance tax (IHT). For property, IHT will be charged at 40% for any value over £325,000. For example, if on your death your home is worth £500,000, your descendants will pay 40% IHT on £175,000.
Strategically using equity release can potentially reduce the potential tax liability, as it acts as a debt on the home, reducing the overall value.
However, it’s crucial to work with specialist financial advisors, like us, here. We are well-versed in estate planning and equity release, ensuring you make the most tax-efficient choices.
Considering equity release? Consult with our team of specialists to make informed decisions. It may not be right for everyone, so we will tailor advice and guidance to your unique circumstances and goals.
Want to know how much you could release from your home? Use our calculator.