The Question
We have three grandchildren who, we are proud to say, are all looking highly likely to be heading for university. We want to pay for their university education using the money we have invested in our home. We don’t want to sell our home, but we also dearly want to see our families enjoy what is essentially going to be their inheritance.
Equity release seems like a sensible solution but is there any tax we must pay since we are gifting this money to family members? Additionally, is there way of releasing the money as and when each child attends university so we can retain the money in the home (hopefully gaining interest)?
Both my husband and I are 76 and our grandchildren are 14, 15 and 17. Our house is valued at £750,000 and we want to gift each child £50k to cover fees and some living costs.
Mark’s Answer
Thank you for your enquiry and it is clear you are immensely proud of your grandchildren, and I wish them every success with their future studies.
Here at Equity Release Supermarket our independent expert advisers are receiving many enquiries from grandparents and parents who are looking to use the equity in their homes to transfer some of their wealth, at a time when their grandchildren and children most need capital.
Like you they want to see their families enjoy and receive a lifetime gift rather than waiting for their long-term future inheritance.
When I am asked this question, I always remind the enquirer that if they decide to gift capital to their grandchildren, they would not be able to use these funds for their personal requirements in the future including paying for long-term care.
I can confirm that there is no tax to pay on the gift to your grandchildren; however, I am not an Inheritance Tax Specialist and there could be an inheritance tax charge in the future depending on how long you live for following the gift.
As I am not authorised to provide Inheritance Tax advice, I asked a specialist who confirmed, that subject to early planning you can gift your children as much money as you like while you are alive, and this is called a Potentially Exempt Transfer.
Luckily, the money from equity release counts as one of these gifts as the money gifted becomes exempt from inheritance tax, provided that the person making the gift lives for seven years afterwards.
There are some rules you need to know including if you gift money from equity release and die within three years, then the gift will be charged at a 40% tax rate if your estate is liable to inheritance tax.
Any gifts made three to seven years before your death will then be taxed on a ‘taper relief’.
For a clear picture of your personal circumstances, I would recommend that you discuss Inheritance Tax and Inheritance planning with a suitably qualified adviser.
I would also suggest that you talk to one of our friendly, expert, whole of market advisers who will discuss the ways in which you can raise capital for your objectives, including the flexible Lifetime mortgage as based on your age, the value of your property and your objectives of gifting £50,000 to each of your grandchildren his highly likely to be achieved.
With a flexible Lifetime mortgage you raise a capital lump sum that is secured against your home, and you retain 100% ownership. The provider will give you a fixed interest rate for life and you decide if you want to make payments or let the interest roll up.
Please note that our advisers will provide you with examples of making payments and not making payments so you will be able to make a choice.
Furthermore, you can start and stop making payments at any time without penalty, which is one of the many flexible features of a Lifetime mortgage.
Additionally, with the flexible Lifetime mortgage you can access an initial lump sum and then arrange a cash reserve facility to drawdown further funds in the future, subject to terms and conditions, so this feature would fit nicely with your plans to release tranches of capital once your grandchildren confirm their attendance at the university of their choice.
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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