How to Release Equity to Provide an Early Inheritance
Life is tough, and keeping up with day-to-day financial needs can be challenging for all ages, particularly in 2021. Covid-19 has made it even tougher to make ends meet or maintain a certain lifestyle.
If this is the case for your children or loved ones, releasing equity from your home to give them an early inheritance could be life-changing. Let’s explore this option to see if you could, perhaps, make your kids’ dreams come true!
What’s Equity Release?
Before we continue, let’s look at equity release in a nutshell.
Equity release allows you, if you’re a homeowner over 55, to unlock the cash tied into your property. This can be done in a lump sum1, a series of smaller lump sums, or regular income. The loan, plus interest, is then paid from the sale of your home when you pass away or move into permanent care.
Learn more about: What’s Equity Release and How it Works
There are 2 main types of equity release:
The first type of equity release is a lifetime mortgage. This type lets you take out a mortgage on your home if it’s your primary residence. However, you will remain the owner. You’ll have the option to ringfence2 part of your property for your family to inherit. You can also make repayments or let the interest increase.
Better yet, if there’s any loan amount or any accrued interest3, it’ll be paid back when you pass away or need long-term medical care.
The second type is a home reversion, which means you sell a portion of your property to a lender who will give you a lump sum or regular income payments. In addition, you get to stay in your home until you pass away or move into medical care.
Now, how does this impact an early inheritance?
Equity Release & Inheritances
Revising the concept of inheritance is long overdue, especially now that people, on average, live longer, better, healthier, and more active lives. Today, you can receive an inheritance early from your parents if they’ve taken out an equity release plan. Many people plan to rely on that inheritance to fund their retirement instead of a pension. So, getting an early inheritance can be quite beneficial for your future financial planning.
Skipton Building Society did some recent research and found that 1 in 4 people don’t plan to give their children an inheritance. Something new has happened: spending the kid’s inheritance (or SKI-ing for short). More and more retired folks are celebrating the end of their lives, enjoying the equity release uses.
Passing on a Legacy
This can sound surprising, but if you look a little deeper, SKIers may have passed on a legacy already, in some way or another. As life gets more expensive, many people choose to gift their loved ones an ‘early inheritance’. This is often in the form of training courses, covering university costs, property deposits, weddings, or newborn babies.
For those helping their family in different ways than the norm, leaving a legacy isn’t enough. People want to see their inheritance being enjoyed while they’re still alive. That’s why SKIers use their most significant asset, their property, to help their family with a leg-up in life.
In addition, you can give your kids a boost to start a business or invest in their future. Releasing equity could change their lives.
Now, how does equity release work, and how does it relate to an inheritance in action?
Inheritance in Action with Equity Release
You’ve given an early inheritance if:
1. You’ve released equity, either a lifetime mortgage or a home reversion plan.
2. You’re older than 55.
3. In one way or another, you’ve gifted the money you received to your family.
Note: You can release a £10,000 minimum and then leave more than that in a reserve fund so that you can withdraw it as and when you need.
7 Things to Think About BEFORE Releasing Equity for Early Inheritence
- You’ve spoken to a financial adviser who thinks it’s a good idea.
- Your family agrees to getting an early inheritance.
- You have no other means to help your family.
- You would rather give them money now, than at a later stage.
- Your property value could increase with time, leaving them even more when you pass away. The opposite could also be true.
- Interest will be paid on the money you have given them.
- With some equity release plans, you can guarantee an inheritance. Therefore, you could use the money yourself and still have some income for your family.
Got Questions? Check These First
How Quickly Can I Get Equity Release to Give Early Inheritance to My Kids?
What are the timescales to taking out your equity release? An equity release application takes about 4 – 6 weeks for lifetime mortgages (the most popular type of equity release ) and 6 – 8 weeks for home reversion plans if the property title is clear.
How Does Early Inheritance Work?
Sometimes, parents can give a big monetary gift to their child and say it’s an “early inheritance.” For tax purposes, there’s no such thing as an “early inheritance.”
The amount is subject to a gift tax as well if it’s above a certain amount.
How Can I Get Inheritance Early?
Usually, the only way to get your inheritance early is if your parent gives that to you before they pass away.
But sometimes, a parent dies, and their assets are held in trust for the benefit of their surviving spouse.
Can I Give Inheritance Early in the UK?
You can give your heirs as much money as you like while you’re alive, as long as they are permanent UK citizens. Other gifts go towards the value of your estate.
People receiving your gifts will have to pay Inheritance Tax if it’s more than £325,000 in the seven years before you pass away.
It’s amazing if you have the luxury to give your family an early inheritance and see them flourish because of it. You can change their lives now, rather than waiting until you pass away.
However, you must be aware of the equity release pitfalls before making your final decision.