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Taxation

Tax on Equity Release

If you have been considering entering into an equity release scheme, you may have questions or concerns regarding tax obligations. Equity release could see you handed a lump-sum cash payment (or series thereof) worth thousands of pounds, which you would expect to be taxable at the going rate.

All of which raises one important question – how much tax do you have to pay on equity release?

Equity Release is 100% Tax Free

Contrary to popular belief, you do not have to pay any tax whatsoever on equity release funds. The money you receive under the terms of the scheme is 100% tax-free, meaning you get to keep every penny of it.

Tax obligations only come into play when the funds raised through an equity release scheme are put to use in certain ways. For example, putting the money in certain types of savings accounts could result in tax liabilities, as could some types of purchases and investments.

Equity Release to Reduce Inheritance Tax (IHT) Liabilities

As equity release payments are exempt from tax, using equity release to reduce inheritance tax liabilities is a popular option among older homeowners.

Under current inheritance tax guidelines, IHT is payable at a rate of 40% on the value of all estates above the £325,000 threshold for an individual. If the total value of your estate exceeds this £325,000 minimum, you could use equity release to reduce the value of the estate you leave behind, potentially eliminating inheritance tax liability for your heirs and beneficiaries.

Independent Advice on Equity Release

Unless you are confident in your knowledge and understanding of all possible tax implications pertaining to equity release, it is essential to seek independent advice from a properly qualified accountant before going ahead.

Depending on your financial position and the course of action you take, equity release can have both negative and positive taxation implications. Particularly if you plan on leaving an extensive estate to one or more beneficiaries after your death, it is important to consider all available options to reduce or even avoid tax liabilities where possible.

For more information or to discuss your requirements in more detail, book your obligation-free consultation with one of our advisors today.

Last Updated: Apr 22, 2020 @ 11:09 am
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