Equity Release – A tax efficient way to pass on your legacy?
Equity is the value of your home less any outstanding mortgage or other debt secured on it. In most cases, section of the population targeted by equity release industry tends to be home owners who are retired or nearing retirement (Usually people aged over 50). Equity release process is said to help home owners free the equity built up on their home by settling any outstanding mortgages or other loans and providing access to the cash value of the equity.
Equity release is a growing industry, more so in the adverse economic climate that followed the credit crunch but the industry does not seem to enjoy the recognition other sector of the financial industry enjoys, perhaps because of the fact that it seem to base a significant part of its projection on the death of people releasing equity on their home.
There are different types of equity release products on the market offering different ways of releleasing equity on your home whilst continuing to live in your home. Some people argue that equity release is a tax avoidance but other argue that it is just an efficient way ot enjoying some of your hard earned cash while you are still alive or a tax efficient way of providing for your benefactors before you die.
Properties in UK had experienced a significant increase in value in recent years, taking a lot more people into the inheritance tax bracket than ever before. Any estate worth £285,000 or more falls withing the inheritance tax bracket. Inheritance worth more than £285,000 attracts a tax of 40%, this will see an estate worth half a million paying £80,000 in inheritance tax. Critics of inheritance tax argue that its a soft target for the excheuqures when looking for ways of raising more revenue. Another arguement of the critics is that inheritance tax is not fair becuse the person who leave the estate behind has already paid taxes on it.
Equity release is said to be a tax efficient way of passing on your asset to your beneficiary in a much more efficient way than the usual way of passing on asset in a will after death.