Hitchin Nub News is delighted to provide a platform for expert financial commentary through our innovative partnership with Lyndhurst Financial Management, who support our coverage of the local community by being our headline sponsor.

Founded in 1992 operating from Harpenden and having acquired an office in Hitchin in 2015, the firm has supported the local community for many years.

They value the contribution their staff make to helping Hitchin, Harpenden and the surrounding areas such a thriving place to live and work.

So, read on for expert financial commentary from Lyndhurst financial advisor James Wyman as he discusses Equity Release: No longer a dirty word

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Over the years Equity Release gained itself a bad reputation.[.I]

It was seen as the go to solution for people who were unable to manage their finances meaning they ended up with too much debt and unable to repay.

There are two options when it comes to Equity Release:

1) Lifetime Mortgage,

2) Home Reversion plan.

Lifetime mortgage

A Lifetime mortgage is a loan secured on your main residence.

However, you are able to let the interest roll up and it only needs to be repaid on death or if you move into long-term care.

To ensure some of the value of the property is left as an inheritance you are able to ring-fence some of the value or you can make repayments.

Home Reversion Plan

A Home Reversion plan is where you sell part of all of your home to a provider in return for a lump sum or regular income payments.

You maintain the right to live in the property rent free until your die but have to maintain and insure it.

You are able to ring fence a percentage of the property for later use e.g. as an inheritance, and at the end of the plan the property will be sold with the proceeds shared according to the proportion of ownership.

Planning opportunities

Since the 2008 Financial Crash interest rates have been at historical lows, this coupled with a decade of rising house prices has meant that Equity Release can be a powerful tool in later life.

Property renovations and improvements

A very popular use for equity release is to make home improvements or renovations.

If you've always wanted to add a conservatory or extension, or maybe renovate the kitchen or bathroom, equity release can provide the funds to do this.

It can also allow you to make any improvements to your home that make it easier to live in as you get older, like having a stair lift fitted for example.

This means that you'll be able to stay in your home for longer instead of having to downsize or move into a care facility.

Clearing Debts

When you take out equity release, the money has to be used to clear any outstanding mortgage that you have on the security property, but the rest can also be used to clear any other debts that you may have.

If you have debts with higher interest rates, like credit card balances or a personal loan, you may want to pay these off using equity release if you'll pay less in interest over the long term.

Boosting retirement income

Some equity release plans allow you to take the money as a regular income rather than a lump sum.

This can be very useful if your pension income is low in comparison to your outgoings; or simply if you want some more disposable income to have a better quality of life during your retirement years.

Just be aware that this can affect your eligibility for certain means-tested benefits.

Providing family with an early inheritance

If you've got grown-up children who are trying to get on the property ladder or start a business, you may want to help them out sooner rather than making them wait for an inheritance.

Equity release can provide the money that you would have left to your children as an inheritance much earlier and at a time that's more beneficial to them. Doing this can also be an effective part of a wider inheritance tax mitigation plan.

Funding holidays and other once-in-a-lifetime experiences

If you're not too concerned about the effect that it can have on your estate and the legacy you'll leave behind, equity release can also be used to fund holidays or anything else that you want to experience now that you have the time to do so.

The effect on your estate

On death, you can leave up to £325,000 to your chosen beneficiaries with no inheritance tax (IHT) due if you have the full allowance remaining to you.

This allowance can be affected by gifts you make in the seven years before your death.

If you are married or in a civil partnership, they will have the same allowance too. If you are widowed and your spouse left their estate to you, the tax-free amount you can leave to your beneficiaries is £650,000 as you will also inherit their allowance.

When you die an additional main residence IHT allowance (on top of the £325,000) will be available if you leave your main residence to direct descendants (children or grandchildren). This currently stands at £175,000.

For estates with a net value greater than £2m the allowance is reduced by £1 for every £2 above this threshold. Any unused amount can be transferred to a surviving spouse or civil partner meaning that as a couple you could have allowances totalling £1m depending on the value of your estate. This may mean there will not be an IHT liability.

If you secure borrowing against your property using a mortgage, the value of your property will be reduced for IHT purposes by the value of the mortgage outstanding at the date of death.

Your estate's inheritance tax liability will therefore reduce accordingly. You could either spend the amount released or give it away to your children or grandchildren. If you gave it away there is a seven year period before the gift fully leaves your estate.

This assumes that you retain no benefit in the money that you give.

The recipient of amounts above your allowance at death would be liable for any tax that is due should you not survive seven years.

You might like to alter your will so that your estate bears this cost.

Equity Release should only be considered after ruling out other avenues such as using existing assets, downsizing, borrowing funds, and Retirement Interest-Only Mortgages (RIOs).

Managing your finances can seem daunting or complex at times, especially if your financial circumstances change, so now might be the time to think about discussing them with a financial adviser.

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Lyndhurst Financial Management is the main sponsor of Hitchin Nub News.

Without their community-minded sponsorship, we wouldn't be able to bring you local news free from overly-intrusive ads, pop-ups and clickbait.

Click their banner at the top of this story to visit their website and get in touch.

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