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Equity Release: Costs & Tax
As with any financial product you're strongly advised to put
plenty of effort into looking at how much the fees are, as well as if there are any other related charges.

Failure to do this might mean you get grossly overcharged or buy the wrong product for your needs.

And with something as important as Equity release this could mean financial suffering in later life.

It doesn't matter which style of Equity Release plan you choose because the average costs of arrangements is now similar for both Lifetime Mortgages and Reversion Schemes. The main ones to look out for are -
  • Administration fee : £150 - £300 (normally only charged if you decide not to go ahead with the deal)
  • Arrangement fees : £500 - £1,000 (sometimes priced as a percentage of the total loan)
  • Valuation fee : £200 - £500
  • Legal costs : £500 - £1,000
  • General advice : £500 - £1,000
Add all of those up and it can start to become expensive especially when small amounts of money are looking to be released. Signing up to an Equity Release scheme is therefore not that cheap.
How to research fees and charges
As indicated before not all Equity Release deals are the same which can mean that comparing like with like is difficult. One good way to research the fees and charges is the following -
  • Break down and list each fee and charge from each provider
  • Compare the different costs as the different products - Enter this information on a piece of paper, or use a spreadsheet if you're computer literate

By comparing the charges you'll soon be able to see where and how the different deals work and their advantages and disadvantages when it comes to price.

It is important to research like this because many financial products are heavily marketed on certain price points but they keep quiet about others. For example, one deal might offer a discounted interest rate which looks fabulous but the company then charges horrendous setup costs.

Summary - It's imperative to research the all-important costs and fees if you want the right deal at the best price.

Equity Release and Tax
Any cash lump sum produced from releasing equity is free of both Capital Gains tax (CGT) and income tax.

However, if the lump sum is then used to provide an income, perhaps you place it on deposit or buy an annuity, that income might be subject to income tax. This will depend on the amount of the income and whether you have any other income to consider.

Seek professional advice
Personal tax issues can be complex though and everyone's financial situation is different. So it is important to ask advice from a professional as well as talking to an Equity Release adviser.

Many people often balk at paying for this advice but it is my experience that a good tax adviser can often be an investment which pays dividends. For example, they might charge £1,000 for advice but save you £1,500 in tax.

FREE Equity Release Guide

  • This LearnMoney guide offers a simple 5 Step process outlining exactly how to properly research the Equity Release market

  • It make sure you ask the right questions and get proper answers

  • Concentrates on the all-important costs and flexibility of the different Equity Release schemes

  • More details and to download your FREE copy

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