The Question
My mother and father are 89 and 84 and would like to gift some money to their six grandchildren to help with university costs.
They have some money in savings but have also considered equity release as a way to make this very generous gift. As they see it, they will be passing the money on to their family in the future anyway. However, by gifting their money now, they will at least enjoy seeing their grandchildren benefit.
What is the likelihood, bearing in mind their age, they will be accepted for an equity release mortgage? Also, how much money would they be able to obtain? Their house is worth £670,000.
Mark’s Answer
Thank you for your question, and I can confirm that firstly as an adviser, and now as a business owner with over 20 years of equity release experience, the one objective that has never changed is parents and grandparents making gifts and transferring some of their wealth to their loved ones.
Over the years I have witnessed many customers making capital gifts when they can see their family benefit in their lifetime. In my early career, I asked a gentleman of 83, why now, what made you consider a gift to your family, and quick as a flash he said, “I see it as a gift from a warm heart…….”.
At 89 and 84 your parents are able to gift capital from the equity in their home, tax free and depending on the features and benefits they want, they will not be contracted or committed to making any payments. Their grandchildren are able to spend the capital as they wish, and your parents can watch them benefit.
However, before your parents make a capital gift and transfer their wealth from the equity in their home for their loved ones, it is important to consider that once they have gifted the capital, they would not be able to use it for their own personal use including paying for long-term care.
Furthermore, it may affect their current and future access to means tested benefits, it will reduce the value of their estate, and the estate may have to pay inheritance tax in the future when they pass away.
At Equity Release Supermarket we specialise with equity release advice, and we do not give advice on inheritance tax planning as this is also a specialist area, and I would recommend that you talk to a tax specialist or suitably qualified adviser.
However, I recently spoke with a specialist, and they informed me that Inheritance Tax is a tax on the estate, including the property, money, and possessions of someone who’s died. Planning can reduce a future inheritance tax bill and the specialist mentioned that the nil rate band for Inheritance Tax is £325,000 per person or £650,000 for a married couple. Furthermore, the residence nil rate band is an amount in addition to the standard nil rate band, and it was established to try to protect the family home from inheritance tax if it is passed down to direct descendants on death and a common example would be a child, stepchild, or grandchild.
The residence nil rate band is currently £175,000 per person and £350,000 for a married couple. If someone makes an outright gift and then pass away within seven years, the gift amount may be added back into the estate and considered for inheritance tax purposes.
Therefore, before your parents raise equity from their home it is important that they take independent, financial equity release advice, and talk to a whole of market expert. Of course, with their permission you can join them at the meeting which can be conducted initially over the telephone, then face-to-face, or via video conference.
Our friendly advisers will discuss your parents’ requirements in detail, and they will conduct a full means tested benefit review and advise you on the impact of making any gifts. This initial advice is available without charge or any obligation. Your parents would only be charged £1,495 for the advice if any subsequent recommendation was accepted, completed, and you are all entirely, happy with any plan recommended.
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
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