Releasing Your Property Wealth

Many gay singles and couples in later life may find their wealth locked into their property and unable to access substantial assets. Many pensioners are property rich and cash poor. They may have a substantial property asset, but very little in the way of cash and income

Without civil partnership and recognition of our relationships, we continue to face discrimination in the area of inheritance tax. With many estates being pushed above the £254,000 threshold we should be looking at ways of unlocking this wealth and putting it to use.

Gay people should look for ways to access their equity, without losing their right to live in their property. There are a number of specialist schemes that allow this to happen, but the way in which they work vary considerably.

Once released, the money can be used by you for any purpose that you wish. For example, pay off your final debts, repair the house, holiday of a lifetime, supplement your retirement income, or a hedge against inheritance tax.

Background

Many of you may be wary of the words 'Equity Release' and remember the bad publicity within this industry dating back to the late 80's. The products on offer back then were based on the assumption that stock market and property markets would continue to rise faster than interest rates.

The cash was taken and invested into the market, with the returns used to pay interest, and the remainder given to the plan holder to enjoy. High interest rates, falling stock markets and negative property growth meant these plans suffered. Some plan holders even faced repossession.

The collapse of confidence in this market resulted in the formation of an organisation called Safe Home Income Plans (SHIP) in 1991.

The new products offer a guarantee that there will never be any negative equity, the right for the property owner to remain in their home for the rest of their life and a guarantee for them to be able to move.

There are primarily two kinds of release scheme available.

Reversion

The most straightforward, offers a cash lump sum in exchange for the sale of an interest in the property. You may be asked to pay a peppercorn rent, but no interest is payable. The cash can be used for whatever purpose the homeowner wishes. The reversion company normally reserves the right to inspect the property periodically to check that it is kept in good repair and buildings insurance is maintained.

On death, or the second death in the case of a couple, the reversion company will require the sale of the property and will take its share of the proceeds (including growth in proportion).

Advantages of this type of scheme mean that lump sum payments made from these schemes are tax-free, provided that not all the property is sold at once. Leaving a percentage of the property out of the deal will mean that part of the value can be left for your estate. If house prices fall substantially, you would not be affected.

The only disadvantage would come if the property owner dies in the very early years of the plan. Capital Protection can be built into the plan to guard against this.

Mortgage Release

These schemes are very like a conventional mortgage, but the interest is rolled up each year. They offer either a fixed rate for the term of the loan, or a variable rate linked to the Bank of England base rate.

On death, your beneficiaries will receive the full value of the property minus the loan and accumulated interest. You can either receive a lump sum, or a series of payments. These schemes have also been known to exchange property, for a fixed annuity from a life assurance company.

Mortgage release is easier to understand, and the charge for the service (The Interest) is more defined. However, the cash received may not be quite as much as Reversion.

Which?

There is no best scheme, only the right one for you. You should also consider moving down market and releasing money that way. This is not always practical, as you may wish to remain near family and friends, or in the house that you worked so hard to create.

With an ageing gay community and mounting inheritance tax problems for gay estates, Home Release Schemes are set for a big future. They not only improve the quality of gay retirement, but also making sure no unnecessary tax is paid in death duties.

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