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Using a Home Reversion Plan to Reduce Inheritance Tax

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




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