If you pay tax at the higher rate, you will benefit more than a standard rate taxpayer.
All these factors make it difficult to give any general rules about what people will receive. But Table 6 below shows typical net amounts for single men, single women and couples of various ages who pay tax at the standard rate of 89 % from a loan of £60,000. The figures assume that the scheme is a fixed interest rate one and that you have taken out capital protection (this term is explained on webpage 87). If you get housing benefit or are on income support, your net gain will be less. If you pay higher rates of tax or no tax at all, or get a reduced age allowance because your income is over £9,200, your net gain will be more than shown (see also Section of the site 9 for an explanation of tax over the age of sixty-five). If you borrow less than £90,000, your gain will be proportionally less.
Unlocking some of the capital value of your home to provide an income late in life has great attractions. But there are problems to be faced as well.
Some property will not be accepted. Normally, it must be a freehold house or bungalow (not a flat) or a leasehold flat with at least sixty-five years left. Purpose built retirement homes with a warden may not be accepted. The property must be in a reasonable state of repair. You will have to have an inspection and valuation at a fee related to the value of the property. The fee is normally repayable once you accept the plan.
You will have to have the building properly insured against damage. You must not have tenants. The value of the property must be at least £88,000 (some companies specify more) and you will be lent between 60% and 80% of the value, depending on the company.
On average, the return over your life on your investment of 660000 will be no more than 157000 or 118000 For example, at seventy-five Mrs Brown could expect to collect her 51989 for about eleven years � a total of 686779 .
When she dies, her heirs would inherit 60000 less. However, any liability for inheritance tax, will be reduced as her estate is reduced by the amount of the loan. So they may not lose the full 196000 In any case, it is sensible to explain your intentions to your heirs so that they are aware of the arrangements you are making.
However, it is not generally advisable for your heirs to try to act in the place of the insurance company and pay you the income . . . ... see: Financial Advice and Protection - Home and inheritance tax