Rob

Thank you for your comments and suggestions. My father did take legal advice about home reversion, whether it was good or bad is water under the bridge now. The money he received probably sorted out a financial problem at the time. What I would like to impress on everyone is the way these equity release companies completely take over the sale of the property. In our case we not only had to cope with the loss of our last parent, but our inheritance was just frittered away. I think that the law should be changed so that if any equity release plan is proposed and the property is the subject of a Will, then the beneficiaries should have a right to hear about it.

cel 1958:If you buy the house for 50K, and have the 100K gifted, does the seven year rule apply re inheritance?

No. Houses are something of a special case. Whatever you do on paper, if the parents still live in the property, then the property will be still considered to belong to them for both inheritance tax and care costs. However, if the property is gifted to you on paper, you will be liable to capital gains tax from the date of the gift so it's likely that you'd end up worse off.

The only way to be sure of passing on the house is for the parents to move out and give it to you well before inheritance tax or care costs become an issue. It may be possible to do something with a loan secured on the property but anything that is obviously a ruse wont work. Inheritance tax thresholds are quite generous now so you should only worry about the tax if the estate has a high enough value.

Unfortunately the rules are not something that can be opted out of by simply filling in a few forms.

Hi TT lady.

Lifetime mortgage rates are around 6.5%. Therefore if you borrowed £25,000 it would take around 11 years to increase to £50,000. Therefore it has cost £25k interest over 11 years. This money is also mitigated against Inheritance tax. Remember Equity Release doesnt really impact on the people doing it. Its the beneficiaries that are left with less inheritance. The chances are anyhow that property prices would increase by more than the £25k interest over 11 years. This type of equity release can be a great help to many people and regulation has got so much better over recent years(rightly so as it was mis sold in the past). Its the home reversion plans that can seem unfair still.

hi this is exactly the same as my siutation, it all depends on what you want to do with the house i think , if you are happy to selling the house or your share of it etc when they are gone then fine you can buy whatever % you want under a legally binding contract written up by your /their solicitor, but if you want to keep all the house , and not be in a position that perhaps authorities may demand the 2/3s you havent purchased to offset nursing home fees should either /both of them be poorly enoigh to warrant final nursing care in a home, then you need to buy all the house for whatever figure they & you agree.

you should be fine if they are only just retiring now..but if like me you left it until they are much older.. i.e. mine are 75, then the situation becomes really more complex.. good info from age concern to xplain the equity release criteria, and you just have to meet that whether you are a company or individual arranging this.

good luck.

Hi Tomahawk,

Sorry to hear of your situation. Home Reversion plans are always risky , especially when there are family involved. Thankfully home reversion is now a very small part of Equity Release and most plans are now on a lifetime mortgage basis, which at least means what is paid back is proportionate to the length of time the plan is in place. Maybe its worth you finding out whether your father was given wrong advice from a regulatory point of view. He must have had received independent legal advice before signing up to this.

Regards

Rob

dreadful, yes I've come to the conclusion best to avoid these if possible. many thanks.

My sister and I suffered at the hands of an equity release company. My father took out a ‘home reversion’ plan, where he sold just under one third of his house in return for a cash sum of only one sixth of its value at the time, back in 2001. The equity release company therefore doubled their investment overnight. After his death in 2007 the agreement was that the equity release company sell the house to get their third back. They chose the estate agent, they set the price, and they decided whether or not to accept any offers. We were merely bystanders in all this even though we jointly owned nearly 70% of the house.

During the selling process the house was initially valued, but something must have been lost in translation between all the interested parties as it was advertised by the agent at higher than the valued price. After 5 weeks with not the slightest hint of a buyer, the price was dropped significantly. Nobody could be bothered to inform me; I only found out by looking at the estate agent’s web site, but by then an even lower offer had already been made and accepted. This scuppered our plans to buy back their share. The estate agent then flatly refused to tell me the agreed price (I wasn’t their client). The original advertised price was £190K; I found out later from my solicitor that they had accepted £150K, (a drop of 21% in 5 weeks!)

The offer was on condition that contracts would be exchanged after 28 days; however they let it drag on for a total of 47 days. When the sale did finally complete we had to pay over two thirds of their selling costs (Home Information pack, estate agents, solicitors), even though we had no control over the sale. There was no choice in this, the funds were withheld. To this day I have no idea who bought it.

It is a complete rip-off, don’t do it.

thank you for the advice , yes i know how easy it is to fall out !

especially if one gets involved with a partner that they dont approve of!!!

many thanks

The rules are what they are. Maybe they will change soon but they are not something that you can opt out of by just ticking the right box.

A solicitor can draw a home reversion contract between you and your parents but be careful you will need to pay capital gain tax when you sell the house.

£50k plus £100k gift with reservation will do better. If care fees are involved (only 25% need long term care in this country - some old folks die in their home or hospital before they need care) provided that your parents don't have cash in the bank or other properties, the council can send them a bill but no one will pay it.

You and your parents need to take legal advice because this is quite a matter. People do fell of with each other.

wow,thats a great help .thank you very much.. i think ill set up in business giving equity back to folks!! sounds like good investments to me! they can get some cash perhaps for some private medical expenses and wont have to pay me rent as they would to get round all the problems if I bought it on a mortgage....in my parents case 1 is well currently and 1 not so well,and as i will probably be expected to move in to look after 1 or 2 when things get worse ; we didnt want to loose the house as its in an idilllic spot and have to move out again!

many thanks..

There seem to be two types of equity release schemes:
-lifetime mortgages can work per my example of a charge over the property. They release a sum at the beginning and then charge interest which is rolled up in the charge to be repaid when they die from the house proceeds. So dependent on property prices and how long your parents live you may end up with something left at the end or you may not. If your parents lived a long time you might actually end up with a low residual value of the property to come to the estate but if they only lived for a few years there would be quite alot to come to the estate.

- home reversion plans where you sell a proportion of the home which then gets discounted to allow for the fact that the provider will have to wait until they die (or sell) to get their investment back. If your parents sold 50% of the value now and they were 65 then they should expect to get about 25% of £75,000. However, when they sold or died the equity release company would only get 50% of the proceeds and the remainder would fall into their estate. These can be used to sell 100% of the property in which case there wouldn't be anything to fall into the estate at the end of it. The amount they would get would increase as they got older with a 90 year old getting about 60% of the share sold.

In both cases the equity release provider obviously has to make a profit so the interest charged on a lifetime mortgage and the discount applied to a home reversion plan are going to be inflated to allow for this. Personally I think they are a rip off for the old people concerned and I would investigate every other avenue before even thinking about one for my parents.

|If you set up an initial charge for £25,000 and charged say 10% interest (which I'm sure is less than the equity release companies) then by the end of year 5 your charge would be worth £40,262 and if you then added another £25,000 and compounded that for another 5 years you would end up with a charge worth £105,106. Thats what compound interest does for you ! If property prices don't increase by a steady 10% each year then you would be gradually eating into the equity and reducing the amount available if the property had to be sold. If you want to make sure then simply increase the interest rate in the agreement. You can get round the home improvements angle by making sure you pay for them and increasing the charge accordingly.

Any way of doing this (either privately or via a commercial company) is a bit of a gamble and you are betting on the health and life expectancy of your parents and to a lesser extent property prices. If you do go ahead then both you and your parents should take independent legal advice (ie. they should see a different solicitor) as it is a big commitment particularly for them. However, it could be used as a way of you giving them some cash to make their old age a little easier or to allow them to do things they wouldn't otherwise be able to afford and you get to shield at least part of the house value.

If they are both likely to need to go into care in the next six months then I suspect you can't do anything to avoid having to pay the care home fees but if at least one of them is fit and well then you probably can do something. The house isn't considered an asset for sale whilst there is still one of the couple residing there.

thanks for this info, interesting scenario, I'd not thought of this, but my concern would be that the value of the house would not be fixed a point in time.. like now.. increasing over time, especially if any home imporvements are done over the time and if the increase is greater than the % reduction . I would not be able to find the balance at the time the authority wanted paying. ? The maximum the equity cos will give doesnt not go up over time though does it ? they get all the house for only a % of payment.?

One option you could look at (and which proxies the equity release companies) is to give your parents the cash but instead of getting your name put on the deeds register a charge against the property. This could increase each year by a certain % over base or by house price inflation or however you want to word it. Then when they finally die you get your charge / investment paid back including the increase over time. This avoids the CGT and inheritance tax problems. You could register another charge in 5 years when you're ready to do the next bit.

The net value of the house then reduces over time as your charge increases without there being any gift involved as what you are getting is a return on your investment. Hopefully by the time they both need care (which is when the house value would need to be realised) it would be sufficiently low for you to be able to buy the remainder from them.

thank you very interesting views!so it seems we are strapped all ways! I am not so bothered about the inheritance tax, more with loosing the family home which I intended to move into after my parents left it and to rent out my own home as my only form of income then.(i.e my pension!) I am happy to pay my parent s for some of the house now.. but as the equity release companys will only pay 40-50% of the value of home ,dont see why i should pay my parents for more than 50% of the value of their home now to give them the cash.. BUT I dont want then to loose the house altogether for care fees and wouldnt have any ..funds to pay them.

My thought was.pay 25% value of the house as cash now.

Pay the next 25% (as if paying off a loan for the value- a loan monthly instalments) to my parents over the next 5 years

They pay me rent ( lowsish market rate ) back monthly over the next 5 years?

They have a deed to say they remain in the house until the end whenever!

I pay income tax on the rental income- they pay all bills/councl tax etc. as an unfurnished let would? parents are mid 70's.

any thoughts?