| IntroductionWith the formal regulation of sales advice | | | | cash gifts to relatives. As long as they survive the time |
| and general regulation of the Home Reversion Market | | | | the gifts are given by seven years the donors avoid |
| set to be introduced in April 2007, this article discusses | | | | paying IHT on this amount under potentially exempt |
| what they are and how using one can potentially | | | | transfer (PET) rules.In the example above, were the |
| reduce Inheritance Tax (IHT) liabilities.Home Reversion | | | | 72-year-old couple to sell a 50% share in their home, |
| Plans in DetailBecause big name providers favour | | | | they would live rent-free rent free in the property until |
| lifetime mortgage products, Home Reversion Plans | | | | death. On death their inheritors would get the remaining |
| have been overlooked for a number of years, but | | | | half share of the property. If the value of the half |
| comforted by new regulation and a tougher sales and | | | | share remained the same at £250,000 this would |
| advice regime many experts are expecting the | | | | fall below the current IHT level of £285,000. |
| market to grow in the next few years.Lifetime | | | | However, if the inherited the house without the HRP in |
| mortgages, where homeowners release cash by | | | | place they would have to pay IHT of £86,000 on |
| taking out a loan on their home make up the lion's | | | | the full value of the home.The big risk to anyone |
| share of the growing £1billion equity release | | | | looking to take out a HRP is that nobody can predict |
| market and Reversion Plans only currently account for | | | | what will happen to house prices, IHT policy or indeed |
| only £54million of this total, but from mid next year | | | | HRP legislation in the future. There are a lot of |
| this trend is predicted to change.In simple terms Home | | | | variables to consider a future government might get rid |
| Reversion Plans (HRPs) are where you sell all or part | | | | of IHT or if property prices continued their march to |
| of your home in return for a lump sum or a series of | | | | even headier heights the inheritors might lose out. In |
| payments. The person taking out the HRP then | | | | another example, if you were to die shortly after taking |
| effectively becomes a tenant in their own home with | | | | out a HRP the heirs would be much worse |
| the right to reside there until they die or move out. How | | | | off.Potential customers should think about the costs of |
| much you get for selling your home depends on your | | | | setting up a HRP. At the time of writing set up fees |
| life expectancy, which will be influenced by a number | | | | and generally between £1,000 and £1,500 |
| of factors including your age, gender and health. In | | | | and are then followed by a property valuation and |
| short the longer you are expected to live the lower the | | | | solicitors' fees. This means the total could rise to |
| amount of money you will receive as settlement of a | | | | around £2,500 depending on the circumstances |
| HRP.An example of a HRP is a couple aged 72 with a | | | | and complexities of the case. All the companies who |
| £500,000 home could get 40-45% of the value of | | | | offer HRPs have different requirements for application, |
| the proportion they sell. If they sold 50 per cent of the | | | | generally starting with a minimum property value and |
| house and received 40% of that sum, this would | | | | also a minimum age requirement.One thing to bear in |
| equate to a lump sum of £100,000 (i.e. 40% of | | | | mind is that for low-income families the injection of |
| £250,000). The homeowners retain the right to | | | | cash from the HRP provider can affect state benefits. |
| live in the property rent-free until they die, but would be | | | | Another thing to consider is that once you commit to a |
| responsible for maintenance and upkeep of the | | | | HRP there is no way out of it. It is strongly advised |
| property. On death of the owners the property would | | | | that anyone considering a HRP discusses all the |
| be sold by the HRP holder and after deducting costs | | | | different options with their families. Some people argue |
| they would receive the sale proceeds from their | | | | that a house is security and security should always |
| proportion of the property.With more and more | | | | take priority over tax planning.Adrian has a background |
| households being dragged into the inheritance tax net | | | | in Finance and Information Systems Consultancy and in |
| (IHT), some people believe HRPs could become more | | | | 1997 formed his own Company with several |
| of a mainstream IHT planning tool. Homeowners can | | | | associates. At the moment, the thing eating up most of |
| effectively cut their IHT bills left to their heirs by taking | | | | his time is the secured loans specialist website We |
| some of the value of their property and then making | | | | Introduce You. |