If you’re at the stage where you’re wondering ‘how can I reduce the amount of inheritance tax?’ then you’ve started to consider the topic of later life tax planning – or lifetime tax planning as it’s also known.

It’s often a sensitive area to address, mainly because it deals with two topics that people tend to dislike talking about: death and tax.

However, it is important, because in the absence of effective tax planning, any assets you have over and above the £325,000 that you’re allowed to pass on without incurring tax will attract a 40% tax liability. That’s a pretty hefty amount.

So, how can you manage your wealth and your tax in a way that lets you enjoy life now, but at the same time alleviates any concerns you may have around those set to benefit from your estate having to lose almost half of it to HMRC. There actually isn’t that many ways. However, it turns out that equity release and inheritance tax are good bedfellows.

What is inheritance tax?

Inheritance tax is a tax on someone’s estate after his or her death, and on any gifts made by the deceased in the 7 years prior to their death.

If much of your wealth is locked in your home then, traditionally speaking, it’s been impossible to access it unless you sell your property. If you’re happy in your current property and envisage spending your remaining days in it, then it adds another layer of complexity. With equity release mortgages, however, you can release the equity in your property AND still live in it.

So, if you wanted to then gift the money released to, for instance, family members with the aim of helping them to avoid upwards of a 40% tax bill on your death then you could do so – but you would need to live for 7 years after the date of gifting.  Any mortgage debt leftover after death then reduces the value of your overall estate and the tax levied on it. For more information on how equity release works read here.

Via equity release you can have your cake and eat it by living in your home whilst feathering the nest of those closest to you. Whilst it is wholly dependent on living seven years after the gift was made – something that nobody can be sure of – it does mean that you don’t have to experience the disruption of moving home in order to efficiently manage your tax affairs.

As an equity release mortgage broker in Guildford, we can apply for an equity release mortgage on your behalf – although we would strongly recommend that you seek specialist inheritance tax advice prior to meeting with one of our equity release mortgage specialists.

Interested in using equity release to reduce your estate’s inheritance tax bill? Contact the Complete Mortgages team on 01483 238280 or email info@complete-mortgages.co.uk.