Equity Release Schemes  

Most of us hope our pensions and life savings will enough to support us in retirement but one in three people plan to raise funds using their home. Equity release schemes unlock value in your house but can be complex and you should seek advice. There are three main types of equity release schemes:-

1. Lifetime Mortgages
Lifetime mortgages let you borrow a lump sum against the value of your property whilst allowing you to stay in your home.  Unlike a typical mortgage, you don’t make regular payments, instead the interest charged is compounded and added to your loan.  The loan and interest is repaid when the house is sold as a result of death, or if you leave for medical reasons, typically when entering a care home.  Some of the schemes will also allow you to pay off the interest each month.

2. Drawdown or “Flexible” Lifetime Mortgage
This is the dominant form of equity release scheme and the leading growth area, making up 61% of the market.  It is identical to a lifetime mortgage scheme, except that rather than just having access to an initial lump sum, the lender also offers a drawdown reserve.  Arranged at the outset, this lets you withdraw smaller amounts at short notice.  You pay interest only on what you borrow, not the full reserve.

3. Home Reversions
Home reversion schemes, which are typically offered only to those over the age of 65, let you sell a percentage of your home to the provider for a lump sum.  The difference between this and a lifetime mortgage is that you are effectively selling a portion of your house rather than borrowing money.  This means that you have certainty over the percentage of your property you will be left owning when you die.  With a lifetime mortgage, the interest can keep rolling up until you owe the entire value of your property, whereas with a reversion plan, you know that if you sell 50% of your property, your estate will always be left with the remaining 50%.
The disadvantage with home reversion plans however, is that you will sell the portion of your home for less than it is worth – 40% of its value for selling a 50% share in the property is not an uncommon figure.  Additionally, it is worth bearing in mind that if the value of your property rises, the equity release provider will take all the upside on their share of the property.
If you would like to find out more, please don’t hesitate to contact us.

February 2012

Domestic Micro Generation is Tax Free!!

Micro-generation refers to the electricity generation equipment of the smallest capacity, intended for installation in domestic premises. Support for micro-generation includes the Renewables Obligation and Feed-In tariffs. If you install micro-generation equipment in your home but generate electricity in excess of your domestic needs, the income earned from selling the excess to the Grid is not taxable. Tariff rates may be down but this may still make sense, as it could be the difference between selling your house and not!!

November 2011

"Rent a Room Relief"

Don’t forget that “rent a room relief” is still available enabling you to earn £4,250 per year free of tax from someone renting part of your home.

In the present climate, we are all looking for ways to stretch our budget and if you have a spare room you may want to consider renting it out. The current Rent a Room scheme enables you to earn £4,250 per year free of tax from someone renting part of your home.

The Rent a Room scheme allows homeowners to receive a small amount of tax free income if they let a furnished room in their only or main home. The £4,250 is allowable on 'gross' income (receipts before expenses). However if income is in excess of this, there are also ways to set tax against income.

If you are facing some financial difficulties or want a bit of extra income to stretch the household budget, a lodger may be a possible solution. For many people this can be a good way to earn money from their home, but it’s always advisable to seek professional advice to help weigh up the pros and cons and how it might affect your overall tax liability, So, if a lodger is the solution to your financial crisis, please come and see me.

October 2010