Didn’t think and grow rich? It’s not too late for your loved ones!
The greatest days are just ahead of you when you grow old, and what better way to celebrate the rest of your life than to share it with your loved ones through equity release.
Find out what you can accomplish by reading this article:
- Grasp the idea of equity release being used for gifting.
- Know the connection between investments and equity release.
- Understand how equity release gifts are better for you when you retire.
As experts in the field, we’ve dedicated our lives to helping people build theirs through research and analysis.
Interested? Scan your way through the page and let us know if equity release gifting is something you’d want to do.
How Equity Release Revolutionized Gifting
When people think of gifting, they often imagine a person giving all their worldly possessions to another. While this is an effective gifting program for some people and is in line with the long-standing tradition of giving everything away on death, some would like to offer something now while still living.
Equity release has been a godsend for these people. Equity release gifting is a relatively new gifting program, having come to light in the UK in 2004.
Today, equity release is used by thousands of families who wish to provide their children or grandchildren with some wealth now while at the same time protecting themselves from extra expenses and care costs in the future.
Weddings, tuition fees, emergency funds, debts, and more are why most people have used an equity release gifting program. The fundamental difference between this form of gifting and the traditional form is that it allows you to pass on wealth now rather than in the future at your death.
This may be a small convenience for some who wish to offer a small token of love now rather than in the future. However, for others, it has changed their lives entirely, with children being able to help their mothers and fathers out of debt while at the same time building a small nest egg of wealth for various reasons.
Understanding Equity Release Gifting
Lifetime mortgages have become more popular recently as people look for different ways to fund their retirement years or as a gift to their families. Equity release gifting is simply an extension of this concept: using equity release loans the same way we used our properties in the past.
The word equity release may mean many things, which is why it can be pretty confusing. The confusion arises from the fact that there’re two types of equity release:
- A loan against the value of your ‘home’ (or property). For this type of loan, you will usually need to own a home of some value, and you will pay interest on the loan over an agreed period. You don’t sell your home – instead, you add a mortgage onto it.
- ‘Gifting’ the money that is released from your property to a beneficiary1/potential heir. In other words, this means releasing equity from the value of your property, giving the money to someone else (gift it), and letting them decide how they want to use it.
Investments, Gifting & Equity Release
Once you’ve decided to use an equity release company or financial advisor, it’s crucial to understand the difference between gifting and investing. Many people believe that they’re doing both when they only gift a small amount of money to their loved ones over time. This isn’t true.
To be classed as an investment, you would need to gift a substantial amount of money. This would likely be in the form of capital and would include a reverse mortgage2 on your property or another way of loaning money from your house.
The property ladder3 was an investment program that involved taking out small equity release loans on each of your properties. The money would be used to buy a new property under the same name, and it was hoped that the value of this property would increase as quickly as possible.
Once you owned four or five properties in this way, their combined value meant that you could sell them off and release large amounts of equity.
How Does Equity Release Gifting Work?
Well, it’s as simple as filling in an application and getting a quote! The process is usually very fast and painless (it only takes about 10 minutes to get a quote). Anyone can apply for an equity release loan.
For example, if you’re looking to gift money to your children halfway through their education, all that is required is a credit check and property appraisal4, which takes only a few days. The properties of the beneficiaries don’t need to be valued at any market price, so there is no waiting around to see; you can gift it while the beneficiary is still in their studies.
It doesn’t matter if the property you’re gifting from is paid off or not. You can give it whether or not you need the cash from equity release or are even thinking about selling your home in the future. Equally, there is no reason you wouldn’t be able to gift money from your equity release loan once you’ve completed it.
Equity release gifting can be used at any time and for whatever purpose or beneficiary you see fit; if you wish to use the same program for another beneficiary, all that is required is that you make an additional application.
Equity release isn’t an inheritance plan but an alternative way of paying off your mortgage or releasing equity from your property to use it as you see fit. Equity release isn’t a tax-free gift, however. But as the money from your equity loan is yours to do with as you please, gifting it comes tax-free and without any legal responsibilities.
It means that if you live in the UK and are over the age of 60, you can access up to 25% of the value of your home from equity release equity gifting without affecting your capital gains tax5 and inheritance tax exemption on properties.
If you’re considering gifting some money for a purpose that is too sensitive for an inheritance or because you don’t want to put unnecessary pressure on a beneficiary, then Equity Release Gifting could be the right option for you.
Why Gifting By Equity Release is so Good
If you’re on a low income – especially if you can make a small initial deposit – then perhaps this type of gifting is most appropriate. It has the added benefit of releasing equity from your property without having to sell it (although you may want to do this at some point to access the total value released).
There are also no age limits restricting who can use equity release gifting as part of a gifting program. As long as you control your mental faculties, the equity release loan can be gifted to any person or charity you wish.
You can gift any amount you like, and there are no tax implications for doing so because, unlike a loan against your home, you aren’t giving them money to your beneficiary. They’re receiving it as a gift.
Equity release gifting can be a better option for beneficiaries with mental or physical problems that stop them from getting jobs. It allows them to get hold of money quickly and easily and have the freedom to decide what they need it for.
It’s worth noting that with interest rates remaining low, this type of gifting has become more popular as there is less interest payable on the loan against your property.
You can choose how you want to gift the money, whether it’s lump sum6 or installments, and you can also decide when this should take place. You might decide that it would be beneficial for your loved one to have access to some of the money earlier on (perhaps they need to pay for a medical procedure) instead of waiting until you pass away.
Other Things to Consider
Equity release is something that many people consider in the later years of their life. They’re approaching retirement, they may be struggling financially, and there can be challenges with making ends meet. This kind of gifting is just one way of making your assets work for you and your beneficiaries.
However, there are other ways of ensuring that your loved ones will be able to enjoy the benefits of having extra money available, even if you don’t gift it to them. You could consider:
- Using a trust fund7 established by yourself or other family members. This gives a regular income and future inheritance.
- If you’ve made significant savings over the years, you may be able to use these to supplement your pension entitlement and therefore live off an enhanced income during retirement. This could also include selling some of your assets (such as property) if needed.
- Boosting your state pension by making additional National Insurance contributions8. This will entitle you to a higher state pension in the long term.
It’s worth noting that these options aren’t mutually exclusive, and you may wish to combine several of them when planning for any gifts you might give. And if your family and friends use Equity Release Gifting as a part of their financial planning, this can be an effective way of receiving funds later in life.
How Is Equity Release Gifting Taxed?
Equity Release Gifting is designed to help save as much tax as possible on your parent’s or grandparent’s estate.
The process works in this way: normally, if someone donates money or other assets to a beneficiary through their will, then the person who made the gift (the Donor) must pay Inheritance Tax on that money if there is any tax to be paid.
How Long Does the Equity Release Gifting Process Take?
The Equity Release Gifting process is quick and simple in most cases; Equity Release solicitors will ensure that everything is done properly, so you shouldn’t have to wait any longer than a few weeks to receive your money.
Is Equity Release Gifting Better Than Traditional Gifting?
Equity Release Gifting is a better way to gift money than making a normal cash gift, as the gifting payments are safe and secure.
Furthermore, you will also save tax on this money, meaning that more of it will be available for your parent or grandparent’s Equity Release plan; this can help them access greater levels of equity from their property than they would if they were to use other methods.
How Do I Apply for an Equity Release for Gifting?
If you have decided that equity release gifting is the option for your parent or grandparent, then an equity release solicitor can help you to apply for a mortgage release plan.
This will give them access to the money they need in order to make their strategic gifting payments; equity release solicitors will guide you through this process, ensuring that you’re fully prepared for the next step.
Equity release gifting can often be misunderstood, and you may want to check that your solicitor is fully apprised about how it works. However, it should definitely be considered if you’re going to protect yourself against financial hardship in later life and make some of your hard-earned money work harder for the beneficiaries you choose.
Equity release gifting is undoubtedly not for everyone, but it can give you another option to consider if you’re looking for ways of helping your loved ones financially. By taking control of when you gift money to your beneficiaries, equity release gifting can give you peace of mind knowing that the capital available for them to use isn’t dependent on an inheritance or help from other family members.