Maximize Your Inheritance Tax Savings with Equity Release
How to Use Equity Release to Lower Your IHT Bill and Benefit Your Loved Ones
Is Equity Release Right for Your Inheritance Tax Planning?
If you're looking for ways to reduce your Inheritance Tax (IHT) liability, you may have considered using equity release. Equity release allows homeowners to access the equity in their property, either as a lump sum or a regular income. The funds from equity release are tax-free, which can make it an attractive option for those looking to lower their IHT bill.
But is equity release the right choice for your IHT planning?
Let's take a closer look at how equity release works and whether it's the right option for you.
How Equity Release Can Help with Inheritance Tax Planning
When calculating your IHT bill, equity release is considered a liability, which means it must be deducted from your total assets. This reduces the net worth of your estate, potentially minimizing your IHT bill. Additionally, gifting the funds from equity release to your beneficiaries as an early inheritance can lower the value of your estate further, potentially reducing your IHT liability even more.
However, it's important to consider that if you pass away within seven years of gifting the funds, the gifted money may be subject to IHT, calculated using a reducing scale called "taper relief." It's essential to work with a financial advisor and tax planner to determine the most efficient sums to release and how to best use the funds for IHT planning.
Understanding Inheritance Tax
Inheritance tax is a tax calculated on the value of your estate after you pass away. The current threshold for an individual is £325,000, meaning if your estate is worth less than this, you will not have to pay any IHT. Any amount above the threshold is subject to an IHT rate of 40%.
However, there are circumstances in which the threshold can be increased. For example, if the assets are left to a spouse, civil partner, charity, or community amateur sports club, the threshold increases to £650,000. The "Residence Nil Rate Band" also allows for an increase in the IHT threshold to £475,000 if the home is left to children, stepchildren, or grandchildren.
It's essential to consider how your estate will be valued for IHT purposes and whether there are any strategies you can use to reduce your IHT liability. This may include gifting assets, setting up a trust, or using equity release.
Comparing Equity Release to Other Options
While equity release can be a useful tool for IHT planning, it's essential to consider whether it is the best option for your circumstances. Releasing money from a pension, for example, may also be a way to generate tax-free cash that can be used for IHT planning.
It's essential to compare the costs and potential risks of equity release to other options, such as selling assets or taking out a traditional mortgage. Working with a financial advisor can help you to understand the pros and cons of each option and determine the best course of action for your specific situation.
The Key Takeaways
Equity release can be a valuable tool for reducing your IHT liability, but it's essential to carefully consider the potential impacts on your estate and any remaining beneficiaries. Working with a financial advisor and tax planner can help you to determine the most efficient sums to release and how to best use the funds for IHT planning. It's also crucial to compare the costs and potential risks of equity release to other options and consider whether it is the right decision for you overall.
Who Are Willow Private Finance?
Willow Private Finance is a specialist mortgage brokerage that offers professional financial advice and assistance to clients seeking to secure a mortgage or refinance their existing mortgage. The company is dedicated to providing its clients with personalized and tailor-made solutions to meet their specific financial needs and goals.
With a team of highly qualified and experienced mortgage advisors, Willow Private Finance is able to offer expert advice and guidance on a wide range of mortgage products and options, including first-time buyer mortgages, buy-to-let mortgages, Commercial mortgages, Bridging finance, Lombard lending, and Development finance. The company also offers a range of services to help clients navigate the complex and often confusing process of securing a mortgage, including assistance with mortgage application and documentation, as well as ongoing support throughout the mortgage process.
In addition to its mortgage brokerage services, Willow Private Finance also offers a range of other financial services, including protection insurance and equity release.. The company's goal is to provide its clients with a comprehensive and holistic approach to finance and management, helping them to achieve their financial goals and secure their financial future.
