Many people use equity release to provide financial gifts for family members – but will doing this leave them liable for inheritance tax? Mark Gregory settles a sibling ‘debate’ over this very question
The Question
Please could you help settle an argument between my brother and me? I am a granddad of four and father of two. I’ve decided, in my old age, I would like to see my offspring enjoy their inheritance and so I am going to take out equity release.
I told my brother and he said if I die within a certain time, any of the money I gift to my family – even if it’s through an equity release loan – will be liable for inheritance tax. I’m not convinced! (He does have a habit of winding me up – that’s brothers for you). But it would be good to get the final word from an expert.
Mark’s Answer
Your question made me smile as I have a brother who has a habit of winding me up, but it is all in good fun and we have a great relationship. Ideally, I would like to settle your argument and confirm either way; however, on this occasion you may both be right.
This is because there may be an inheritance tax liability on your estate; however, this is based on the potential gift you want to make to your offspring and the value of your estate. Here at Equity Release Supermarket we specialise with equity release, and we can help you raise the capital for your gift; however, we do not provide inheritance tax advice.
Therefore, I spoke with an Inheritance specialist on your behalf, and they explained that everybody in the UK can receive an inheritance tax allowance (called the Nil Rate Band), which permits you to pass on assets up to £325,000 to anyone free of inheritance tax. Married couples are permitted to pass assets free of inheritance tax to their surviving spouse and can also pass on their inheritance tax allowance to their surviving spouse.
If you leave your home to another person in your will, it counts towards the value of your estate. However, if you own your home (or a share in it) your tax-free threshold can increase to £500,000 if:
- you leave it to your children (including adopted, foster or stepchildren) or grandchildren
- if your estate is worth less than £2 million
However, if you make an outright gift and then pass away within seven years, the gift amount may be added back into your estate and considered for inheritance tax (IHT) purposes. Furthermore, the specialist adviser said that inheritance tax may be payable for up to seven years if you make the gift to your offspring, but it depends on the size of the gift and the value of your estate.
I would suggest that at this stage of your enquiry, it would be wise to discuss your plans with one of our equity release experts who will consider the best solution for your plans, and if the gift impacts on your estate, they will suggest that you talk to an inheritance tax specialist.
So, as you can see on this occasion, your brother may be right… But then again he may not be, that is brothers for you…
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
