Lifetime Mortgage

[murph]

Someone recommended a Lifetime Mortgage to my mother as a way to avoid leaving her heirs with an inheritance tax bill. Her house alone is valued at 330,000 and thus way over the nil-tax bracket. I understand the need to try and reduce the estate, but can anyone explain how a Lifetime Mortgage could help her do that?

 

 

[Didwot]

The theory is this. Borrow sufficient to reduce the value of the house to below the IHT threshold, currently �263,000, and get rid of the cash that has been borrowed. The simplest way to do that is to give it away, which would produce a potentially exempt gift, and then live for seven years so that the gift fell out of the IHT calcualtion, However this is not always a good idea, particularly as your mother may need the cash later on. I assume your mother is talking to an IFA who would be able to advise her about life insurance related bonds held in trust, and other clever devices.
Of course each situatioin is differeent, and your mother will have to consider her own wishes and needs carefully.
What is really required is for the chancellor to drop the IHT rate to say ten per cent, and then we would all stop worrying about it, and stop jumping through tax avoiding hoops, so he would get more tax rather than less. Too obvious for a politican to work out.

[murph]

Didwot, thanks for the reply. If you are anyone else is still watching this one, here's a follow-up question. If she borrows �80,000 on the house, and manages to gift it and then survive 7 years, then at her death her estate is worth �80,000 less. Sounds great. She will have saved some money for her heirs.

BUT won't there be interest to pay on the �80,000 borrowed? I get the feeling it would almost cancel out the benefits of entering into this kind of scheme.

murph