Use Equity Release for Inheritance Tax Planning
Equity Release: The new estate planning vehicle?
Equity Release Interest rate roll up at say 4.5% pa. Example: £1.5M house – release £0.5m gift to two children £250k each, they each then buy a home.
Saved Interest on Children’s Mortgages (assumes Interest Only mortgage) - £500k at say 3% pa (0.25% pm) =
+ House price inflation say 6%pa (based upon 5.83% pa compound average house price growth last 36 years). Source Halifax House Price Index.
500k of property total value with growth may be worth:
IN 20 YEARS
Value equity release debt = £1,227,733 - this could reduce inheritance tax bill (at 40%). £1,227,733 X 40% = £491,093.
Children save interest payments by not having a mortgage (assumes Interest Only mortgage). 20 years = £910,377.
Children property value 20 years = £1,600,040.
SUMMARY AT YEAR 20:
For a cost of £1,227,733 equity release debt.
Children have property worth = £1,600,040 + saved mortgage interest payments £910,377 + saved/reduced inheritance tax bill by £491,093
= TOTAL BENEFIT TO CHILDREN £3,001,510.
But debt £1,227,733 means £1,773,777 REAL WEALTH IMPROVEMENT.