‘Living inheritance’ could help you reduce inheritance tax bill

Graham Southorn shares inheritance tax tips

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Of course, there is no one answer as the matter will vary from person to person, but for those opting for a living inheritance, equity release has been posited as an option. It is vital to note equity release is not the right option for everyone, and individuals must take advice before choosing this path.

However, individuals may wish to consider all the options at their disposal going forward. 

Express.co.uk spoke to Alex Edmans, financial expert at Saga, who weighed up the differences between traditional and living inheritances. 

She said: “People can use equity release to gift to the younger generations, instead of it being an inheritance following death.

“Individuals see their children or grandchildren struggling during the cost of living crisis, and want to help in the best way they can.”

Ms Edmans stated Saga had observed a trend of more people turning towards equity release as an alternative option to inheritance after death.

Indeed, she also stated people are using the option more during the current cost of living crisis than in the pandemic.

The expert continued: “The option can also provide the opportunity to help out family when needed – perhaps during big life events.

“For example, with property prices increasing, the ladder is so difficult to get on unless you have a significant deposit.

“In this case equity release works as a sort of living inheritance where people can help their children or grandchildren in the here and now. Seeing your children settled in their own home is likely to be very satisfying.”

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But providing a living inheritance to one’s family may not be a straightforward endeavour.

The same tensions which could arise from leaving an inheritance after death could crop up sooner.

For example, it could be difficult to divide financial gifts equally, especially if one beneficiary’s needs are considered to be greater than another.

It is also vital for Britons to think about their future, making sure they have enough to get them by should they need it. 

In this sense, Ms Edmans argues it is important for Britons to research this issue carefully, as well as bringing in the support of others.

She continued: “When equity release is taken out, the interest is fixed so you can forward plan and understand how the loan is going to be repaid – either on a person’s death or going into long-term care.

“You should be involving your family in this discussion so they understand exactly what the implications are.

“When it does get to the loan needing to be repaid, you will have to understand what the impact is going to be.

“In that sense, that is one of the key drawbacks of equity release. It will reduce the amount which is available to the estate for inheritance.

“If family has benefitted from it earlier in the day, then it might not be a problem. They get something now but won’t benefit as much later down the line.”

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Regardless, of whether a person opts for a living inheritance or to pass on money after their death, Ms Edmans stressed clearly laying out one’s wishes is key.

If equity release is opted for, families should discuss the matter, but if the other option is deemed best, then a will is key. 

Ms Edmans added: “If you die without a will, your estate will be distributed according to the intestacy rules, which may not be what you want.

“There is nothing as divisive in families than falling out over money, which is really sad.

“What is most important regardless of whether you choose equity release or inheritance after death is a tidy desk. The more informed people are, the less chance there is of any issues happening.

“You could also speak to an adviser to discuss your specific circumstances and what will work best.”

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