A growing number of homeowners believe they have found a “clever way” of avoiding inheritance tax (IHT), says Harvey Jones in the Daily Express: keeping their mortgage in the hope of offsetting it against their IHT bill when they die.
According to the Council of Mortgage Lenders (CML), more than one million people aged between 50 and 64 still have a mortgage, and up to 75% of them plan to keep it “indefinitely”. Everyone has an IHT allowance of £325,000 and anything above this is taxed at 40%, unless it is left to a spouse or civil partner.
What many over-50s are choosing to do is to switch to an interest-only mortgage. “By keeping the mortgage and ensuring their estate remains less than the IHT threshold homeowners can give money to children or grandchildren and avoid tax, provided they live for another seven years,” says Howard Burns, partner at law firm Lewis Hymanson Small. Older homeowners who need only a low loan-to-value mortgage will find the proposition particularly attractive as they can borrow at rock-bottom rates.
Be warned, however: if you live to a ripe old age, total interest payments could wipe out the benefits. In addition, many lenders won’t offer mortgages to those older than 75, which means you will have to repay it before then anyway.