How does equity release work for early inheritance to children?

[chewytalagi]

Can anyone please explain how equity release works? Property value 1million, owned outright. If owners wanted to give early inheritance to their 3 children of 100k each, is that possible and / or advisable?

I wouldn’t touch equity release with the rates as high as they are these days

You would effevtively be taking out a loan of £300k which would be a the first charge on your property when you die - plus of course the interest

Yes, as above, you are borrowing £300,000, and using your home as security.

At a typical rate of 6% then after twenty years the loan amount outstanding would be £960,000.

Could you afford to repay the £100k, if so I would look at remortgaging to borrow the £100k rather than equity release

There could also be concerns around deprivation of assets should the owner require care in the future, or inheritance tax avoidance in the 7 years after the gifts are given.
It’s probably better to downsize to release money to gift to others.

Deprivation of assets for care purposes wouldn't be an issue if op has no reason to think they'll need care imminently
It would be potentially subject to inheritance tax on a sliding scale for the next 7 years if op passes away before the 7 years is up though

It would be a suicidally stupid thing to do. Interest would be capitalised annually and could lead to a large percentage of the remaining £700K being lost depending on how many years it runs fir

Do not go anywhere near it! If you don’t have the funds to gift, don’t. If you wish to gift, sell up, buy something smaller and gift what you want. Ideally, don’t do anything without speaking to a financial adviser/Solicitor

My dad took equity release of £15k to pay off business debts when he retired at 65. By the time he died, 22 years later, it had eaten up virtually the whole value of the house, leaving mum with few options to relocate when she couldn't cope with the stairs. We eventually got her into a rented retirement flat, but she had some years of worry before that. There is also the question of deprivation of assets should you need care, that you need to consider, as well as IHT.

Equity release can be useful in some circumstances and the rules have changed. Some people use it to offset a future inheritance tax bill. Do you have a potential big IHT bill? Generally it makes more sense to downsize and give the money.

Deprivation of assets is only relevant if you know you are likely to require future care.

Which is why I said ‘could’.

I wouldn’t touch equity release, I’d downsize. But you can gift the money, you sign something at the solicitors, a friend did it to give their child some money towards a house deposit.

No such thing as an early inheritance, only parents giving money away. They need to first consider their own cate needs and the tax implications.

It's like one sweet now or three sweets later.

Do your DC need the money now? Have you other assets you could give e.g. savings or pension lump sum? What would happen if you needed the money in a few years time? If for house purchase by DC would they be able to borrow money at a better interest rate than the equity release rate? Could you help with smaller amounts from excess income instead? What do your DC think? I wouldn't have belen happy if my parents had done this.

Really think about why you want to do this and consider consulting a specialist advisor to look at all the options.

And I was clarifying that as long as op has no reason to think they will need imminent care it wouldn't. So op doesn't unnecessarily worry herself if that's not the case. If someone gives away £1 million to their family today and they're fit and healthy and then have a stroke in 2 months time which results in them requiring council funded care that £1mill can't be considered deprivation. Many people think the inheritance tax 7 year rule is linked to social care and it's not

Can't they just downsize instead? no way would I touch equity release.

It would be a financially crazy thing to do for the reasons listed above.

I assume you’re the home owner? Why not downsize and gift the money that way, if it’s important to you that your children have 100k each now?

People don't understand equity release and there's a lot of emotion attached to it as you can see from the comments so far
Seek proper advice by an advisor that's qualified in inheritance tax planning - there are different options that aren't just interest roll up so you could have a lifetime interest only mortgage which would mean yhe debt wouldn't increase

The most important question is how old are you?

I notice they have largely stopped advertising it on daytime tv. I think it's moving towards being the next big scandal about which we will see 'were you or your loved ones miss sold ...'

Relative of DH messed up her finances. First mistake was that her husband left each of their 4 kids a large lump sum in his will reducing her inheritance. She then sold enormous house and bought 5 bed house that she did up no expense spared. Took on the equity release that meant she was paying back an amount of debt that cost most of her quite decent pension to keep up with. Be very wary of so called independent financial advisors who suggest strategies that give someone over 60/70 debt when they were previously debt free.

People don't understand equity release and there's a lot of emotion attached to it as you can see from the comments so far

yep

Any reason why the person can’t move to something smaller and/or in a cheaper area? This would seem sensible but people’s circumstances are different of course.

ER is only paid back after death.

Quite. Which means interest is rolled over. If the is person owning the property lived another 20 years and was on an average 6% interest rate, the total amount paid back would be £960,000