The Bank of Mum and Dad is a popular way for starters to take their first step. But what are the implications for parents, especially if they use equity release? Mark Gregory gives advice
The question
Can the money raised through the equity release be used to finance my son’s home purchase? If so, what consequences will this have for me from a tax perspective?
To give you some context, I am 68 years old and own my house, worth approximately £350,000, in which I live alone. My son is renting and wants to buy his own house so I would like to use equity release to fund £100,000 surety for his first property.
Is this a valid use of equity release? Are there any rules about this? For example, am I liable for additional stamp duty and, if so, is there a way to avoid this?
Mark’s answer
Thank you for your inquiry and I can confirm that you can use the proceeds from the equity release to make a gift to your son and he can use your kind gesture to help him buy his own house.
Furthermore, I can confirm that you will not have to pay stamp duty or tax if you raise capital from the equity in your home. I encourage you to speak to one of our expert advisors. They will talk to you, understand your plans and then create a tailor-made solution based on your circumstances.
You can give your son a gift, and although you have not provided explicit information, I can confirm that based on your age and the value of your property it is possible to raise €100,000. Based on this loan-to-value, current asking rates would start 5.90% MER.
For example, with a flexible Lifelong Mortgage you remain 100% owner of your home and receive a fixed interest rate on the loan for the rest of your life. You and your son can decide whether to pay off the loan by making full or partial monthly payments, or not make any payments at all. The choice is yours.
However, before you make the kind gesture to your son, it is important to understand the situation impact the gift has that you can make of your own circumstances in the short and long term.
For example, if you are eligible or receive means-tested benefits, these benefits will be affected. Additionally, once you make the gift, you cannot use the money for your own purposes in the future, including paying for long-term care.
Finally, even though your donation will not attract income tax or stamp duty, your estate may still be subject to inheritance tax for up to seven years after the donation, depending on other assets you may have.
However, rest assured as our friendly group of market expert advisors will help and guide you without obligation. They will discuss and assess your situation and you can chat with them over the phone, face-to-face or via video conferencing. Your son is welcome to join you at the meetings if you would like him to attend.
Meet our expert…
Mark Gregory, Founder and CEO of Equity Release Supermarketis here to answer your questions. Mark himself is an advisor with over 20 years of equity release experience.
He launched Equity Release Supermarket ten years ago and the company has grown to become one of the UK’s leading equity release specialists.
Email [email protected] to ask Mark a question