Home Reversion Plan
A home reversion plan is a type of equity release that lets you sell all or part of your property in exchange for a tax-free lump sum of cash. Unlike a lifetime mortgage, where you borrow against your home, a home reversion plan involves an actual sale of ownership.
You are granted a lifetime lease, which guarantees your right to live in your home rent-free for the rest of your life. It provides a way to access property wealth while remaining in your home, but it functions quite differently from a loan.
How does a Home Reversion Plan work?
You sell a percentage of your home (for example, 50%) to a home reversion provider in exchange for a cash sum. The amount you receive for this share will be considerably lower than its current market value. This is because the provider must wait, often for many years, until your property is sold to recover their investment.
When the plan concludes (usually when you pass away or move into permanent long-term care), the property is sold on the open market. The sale proceeds are then divided between your estate and the reversion provider according to their ownership percentages.
Eligibility at a glance
- Age: Home reversion plans are typically available to homeowners aged 65 and over.
- Property: You must own your property in the UK, and it must meet the provider's criteria in terms of value and type.
- Mortgage: Any outstanding mortgage on your home must be paid off, which can often be done with the money released from the plan.
What you receive
In exchange for selling a share of your home, you receive two key things:
- A tax-free cash lump sum: The amount you can release depends on your age and the percentage of the property you sell. The older you are, the larger the percentage of the market value you are likely to be offered.
- A lifetime lease: This is a legally binding agreement that gives you the right to live in the property for the rest of your life without paying any rent.
Ownership and inheritance
With a home reversion plan, you no longer own 100% of your property. If you sell a 40% share, you and your estate retain ownership of the remaining 60%.
This means your estate will receive 60% of the property’s final sale price in the future. You benefit from any increase in property value on the share you still own, but you miss out on any growth from the share you have sold.
Moving home
Most plans are portable, meaning you can move to a new property that meets your provider’s criteria. The existing home reversion arrangement would be transferred to the new home.
Potential advantages:
- You receive a tax-free lump sum with no risk of accruing interest.
- There are no monthly repayments to make.
- You have certainty over the exact percentage of your home's value that will be left to your beneficiaries.
- You benefit from any property price growth on the share you retain.
- A lifetime lease protects you from having to leave your home rent-free.
Important considerations:
- You will sell a share of your home for significantly less than its current market value.
- You will no longer be the sole owner of your property.
- Plans are generally not reversible, as they involve a legal sale of property.
- It will reduce the total value of your estate.
- Your eligibility for means-tested state benefits could be affected.
Costs to expect
Setting up a plan involves various costs, including fees for financial advice, independent legal advice, and a property valuation.
Key risks and considerations
A home reversion plan is a long-term decision that shouldn’t be taken lightly. It provides certainty but lacks the flexibility of a lifetime mortgage. Since you’ve sold part of your home, you can’t simply repay a loan to end the plan; instead, you would need to buy back the share from the provider, which could be very expensive.
Is a Home Reversion Plan right for you?
This type of plan may suit someone seeking certainty about their inheritance and willing to relinquish a share of their home’s ownership. However, it is a complex product and may not be suitable for everyone. It is a regulatory requirement to obtain both professional independent financial advice and independent legal advice to fully understand the risks and implications before making a decision.
EQUITY RELEASE (INCLUDING LIFETIME MORTGAGES AND HOME REVERSION PLANS) WILL REDUCE THE VALUE OF YOUR ESTATE AND CAN AFFECT YOUR ELIGIBILITY FOR MEANS-TESTED BENEFITS.
Types of Equity Release
Lifetime Mortgage
Drawdown Lifetime Mortgage
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