Letter to Retirement Planner

Dear Editor

I read with great interest the two IHT articles by Jane Almond and Paul White in February’s issue of Retirement Planner, but I have to admit to being a sceptic about equity release being a solution to the problem of IHT. The reason being that for most couples IHT is a voluntary tax. The media and advisers all too often compare property prices with the threshold of IHT, namely £285,000, and concentrate on the fact that estates above that figure are liable to a 40% tax. However that assumes that a simple piece of tax mitigation has not been put in place.

Most couples in England and Wales are the joint owners of their properties. The effect of this is that each partner to all intents and purposes owns 50% of a 100% and cannot hand down their share separately. However there is another form of tenure – which goes by the name tenants in common. Here each partner owns a discrete 50% (or any other agreed proportion) which can be bequeathed to beneficiaries under a trust arrangement which does not affect the remaining partner’s occupation rights. This in effect doubles the IHT threshold to £570,000 and thus removes the vast majority of the retired population from the need to enter into an equity release scheme in order to avoid paying IHT. The only cost associated with this process is a lawyer’s bill of about £100. There is also no need to wait 7 years for gifts to fall outside the taxable estate, so the benefits take effect immediately.

Paul White’s article on IHT planning made mention of the Close Brothers scheme which I consider to be one of the best examples of innovative thinking to have come into the IHT planning arena for some time. However, this option is neither cheap nor flexible. The costs of the transaction are substantial and depending on how long the parties live can eat a considerable chunk out of the tax savings. It undoubtedly has a place in an adviser’s portfolio of products, but I would be surprised if it suited anyone with a property of less that £1 million in value.

The FSA has stated, on a number of occasions, its concerns over equity release and IHT and quite a number of broker networks preclude their members giving advice on IHT planning if equity release is the solution. It is not difficult to see why this is the case.