A question recently asked by a customer of Conran Mortgages looking for ways to stop the taxman grabbing his children’s future inheritance!

The simple answer is Yes, an Equity Release Mortgage could be a fantastic way to mitigate future Inheritance Tax payable at 40% to HMRC!

Everyone has an exemption of £325k and a further £175k if passing the primary residence to a child.  Therefore if you are married, this could potentially give an exemption of £1m.

There are, of course, exemptions to wealthier estates whereby the Inheritance Tax exemption reduces to £0, but for the majority of people, having this sort of wealth is a dream!

Back to my client, before I digress any further, my client wanted to pay his children’s inheritance whilst he was alive and got to see the benefit at the time when they needed it most. This would sort out their impending challenge of buying a home coupled with good potential to reduce Inheritance Tax. My client could not secure a traditional mortgage, nor did he wish to pay a monthly mortgage payment, albeit many of these products will allow an interest payment to stop the interest rolling up.

Therefore, the best solution was a Lifetime mortgage which is the most popular form of Equity Release. Putting a debt against the property reduced the value of his estate and, assuming he lives for seven years after gifting his cash away, then there is no Inheritance Tax to pay – in his case anyway!

Equity Release mortgages used to be a poor product with bad press, and rightly so.  Rates were over 6%, meaning that interest compounded and the capital element of the mortgage would dramatically increase.  However, with increased competition in this market, rates have been pushed down, and you can secure a rate at circa 2.3%, subject to individual circumstances.

Equity release is not for everyone.  Criteria is strict, and taking solid advice from an Independent Mortgage Adviser with experience in Equity Release is a must. 

We joke with our customers that we put more people off Equity Release than who we would recommend one to. There is a good reason for this but be mindful that Equity release can sort out many other problems for clients, such as repaying mortgages, home improvements and giving income to facilitate retirement.

For great advice from advisers who will NEVER charge fees, then get in contact.