Question
If one takes out an equity release type of mortgage on one's home, where the debt is payable on death, does the amount borrowed count as a debt against one's estate, and thus reduce the total value of the estate prior to an inheritance tax calculation?Answer
Yes it does.
If you take out a 'lifetime' mortgage then the amount borrowed plus interest simply roll-up until you die. On death this debt must be paid from your estate, usually by selling your home, and this is done before calculating your estate's value for inheritance tax purposes.
For example, suppose you have a £300,000 property and take out a lifetime mortgage of £100,000. On death the debt might have grown to £200,000 and the property can be sold for £400,000, leaving your estate with £200,000 after the mortgage has been repaid.
If you take out a home reversion plan (where you effectively sell some of your property below market value but remain there for the rest of life) then that part of the property sold falls outside of your estate.
Either way, the money received from releasing equity obviously remains in your estate unless you spend it or give it away - in the later case 7 years after making the gift.
If one takes out an equity release type of mortgage on one's home, where the debt is payable on death, does the amount borrowed count as a debt against one's estate, and thus reduce the total value of the estate prior to an inheritance tax calculation?Answer
Yes it does.
If you take out a 'lifetime' mortgage then the amount borrowed plus interest simply roll-up until you die. On death this debt must be paid from your estate, usually by selling your home, and this is done before calculating your estate's value for inheritance tax purposes.
For example, suppose you have a £300,000 property and take out a lifetime mortgage of £100,000. On death the debt might have grown to £200,000 and the property can be sold for £400,000, leaving your estate with £200,000 after the mortgage has been repaid.
If you take out a home reversion plan (where you effectively sell some of your property below market value but remain there for the rest of life) then that part of the property sold falls outside of your estate.
Either way, the money received from releasing equity obviously remains in your estate unless you spend it or give it away - in the later case 7 years after making the gift.
Read this Q and A at http://www.candidmoney.com/questions/question435.aspx
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