Lifetime mortgages – a comfortable way to sidestep inheritance tax

What is a lifetime mortgage?

A Lifetime Mortgage allows you to access some of the equity that has built up in your home. Lifetime Mortgages are the most popular type of Equity Release as they are extremely flexible and allow you to retain 100% ownership of your property.

Lifetime Mortgage eligibility

If you own your own property and are aged over 55 then you are eligible to apply for a Lifetime Mortgage. You may find that having paid into your property your whole life, you are asset-rich but don’t have the savings available to do the things you really want to in later life. If so, you may want to consider accessing this wealth in a flexible, safe way without having to sell your property and move.
Lifetime Mortgages are regulated by the government and come with several inbuilt customer safeguards. These guarantees ensure you get the best deal that is right for you and your family.

Benefits of Lifetime Mortgages

• Control your debt – No matter how much you choose to release with a Lifetime Mortgage, you will never owe more than the value of your property and you can never pass on any debt to your estate with these plans.  If you want to move and don’t want to repay the money you can transfer your plan to another suitable property.
• Flexibility – There are plans where you can take as little as £10,000 tax-free and leave more funds in reserve for when you need it.
• Maintain ownership – With all Lifetime Mortgage plans your property remains your own, you have just borrowed against it.

Three different types of Lifetime Mortgages

Roll-Up Lifetime Mortgage

A Roll-Up Lifetime Mortgage you receive a cash lump and there are no monthly repayments to make.  Interest will accrue on the amount of cash you choose to release. The interest and lump sum amount will be paid off when the last home owner on the deeds dies or moves into permanent long term care.

Drawdown Lifetime Mortgage

A Drawdown Lifetime Mortgage works the same as a Roll-up Lifetime Mortgage except you choose to release the money flexibly, as and when you need it. You can choose to have money in a reserve account ready to drawdown when you wish.  The interest will not accrue on the money held in reserve until you have released it, this allows you to minimise the interest charged and have the safety of a cash reserve.

Flexible Lifetime Mortgage

A Flexible Lifetime Mortgage is a type of plan which allows you to make voluntary payments towards the mortgage. Some of these plans have monthly interest payment options but if you decide you don’t want to make any payments at all, you don’t have to. As with the Roll-up and Drawdown Lifetime Mortgage you receive a lump sum and maintain 100% home ownership.

You can get plans with variable and fixed interest rates, with a fixed rate you can see exactly what you are being charged, whilst a variable rate plan may offer an initial lower rate. With all lifetime mortgages, no matter how much equity you take out, you will never owe more than the value of your property and you can never pass on any debt to your estate.

Lifetime Mortgages provide a tax-free lump sum

The money you release from your property is tax free and can be used to spend as you wish, such as home improvements, clearing debts or taking a holiday. However, one of the conditions of a Lifetime Mortgage is that any existing mortgage or secured loans on your property must be repaid upon completion of a plan. This can be with the funds you have released or any other savings you have.

One point to be aware of is that releasing funds from your home may affect your entitlement to state benefits but a financial adviser will be able to explain exactly what this means to you personally and provide advice accordingly.

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