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If you’re coming up to retirement or are just retired and there’s insufficient pension provision; getting money out of the house could be an option.

Releasing equity from your property may be the only real option of enhancing and paying for the ‘little extra’ things during your golden years.

But it’s not just needs that can be a driver.

As some properties are well in excess of current UK ‘Nil-rate band’ limits releasing equity can substantially reduce Inheritance Tax (IHT) or death tax liabilities.

If you’re over 55 the option to take out a Lifetime mortgage and release equity within your property may be a solution.

Interest roll-up mortgage or interest-paying mortgage?

In terms of equity release options either an ‘interest roll-up mortgage’ or an ‘interest-paying mortgage’ are available.

With both types of mortgage a fixed rate of interest is paid.

If the roll-up type of mortgage is chosen interest is added to the loan, and one amount is repaid at the end (on your death) when the property is sold.

The main benefit of this option is that no repayments have to be made, only one ‘final’ repayment at the end.

Alternatively, to limit rolled-up interest choosing an interest-paying mortgage means you can receive a lump sum and make repayments as and when you want. This option also allows the repayment of capital.

Downsides to getting money out of the house

  • For potential family members such as children who will inherit after your death – there may be less.
  • Any means tested benefits or assistance from local authorities could be limited.
  • Restrictions imposed by lenders.

Upsides to getting money out of the house

Firstly, in a rising property market the rising value of your property (capital gains) may ultimately offset the repayments you make.

Secondly, for larger estates in excess of ‘nil rate bands’ releasing surplus equity can bring down IHT liabilities.

Thirdly, releasing equity and being able to stay in your own home removes stresses and strains associated with downsizing at an age when such changes are more difficult to deal with.

Fourthly, having a guaranteed monthly income is attractive.

Lastly (but not leastly) using a ‘lump sum’ to tick off some of those ‘desires’ on a bucket list (if you have one) can be liberating!

As mentioned above equity release in terms of IHT can be viewed as either a threat (to those left behind with a dwindled inheritance), or a tax avoidance mechanism; for those with ‘larger estates’ (in excess of £1.5 – £2 Million) because using equity release (in combination with other tax planning tricks) can reduce IHT liabilities.

In summary, individual circumstances are the key to understanding whether getting money out of the house is suitable for your unique circumstances (or not).

Getting Money Out of The House – An Alternative

Simply selling up and downsizing is another route to getting money out of your property. If you are mortgage free and flexible enough in ‘your mind’ to deal with the change and upheaval then simply selling up and buying a cheaper property as a cash buyer is a solution.

As with all property transactions taxes and fees will be payable but if a sizeable ‘chunk’ of money is left over after the purchase of the new property – why not?