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PROPERTY

Home Reversion

Also called Equity Release, Secured Equity Option, Cash Release Plan, Home Income Plan

A means by which elderly people can use the value of the home they own, or part of it, to obtain money which can be used to give them an income for life. You can get a cash lump sum too.

You sell your home (or a share of it) to a reversion company which in exchange gives you an income for life as well as allowing you to remain in your home. Most companies allow you to move home later and continue the arrangement with your new home. You remain responsible for the maintenance.

Who can use it Anyone over age 65-70 (one company allows it at age 60) with an unmortgaged owner-occupied house or purpose-built flat (converted flats not always acceptable). If married, your joint ages must usually be at least 140.

How worthwhile Fair to good value for people not eligible for the State means tested Income Support, especially single people, widows or widowers and non-taxpayers. Better the older you are. It is important to obtain independent legal advice when embarking on such a scheme. An alternative would be to borrow against the security of your home; some lenders allow the interest to be added to the loan; the loan is then repaid from the proceeds of the sale of the house when you die.

Minimum The value of your home must be at least £40,000 (£30,000 Stalwart).

Maximum Varies.

Money back None. When you die the proceeds of the sale of your home (or a share of it) go to the reversion company so your heirs get less. If you die within 5 years, your estate can get some of the money back but the income is lower if you take a 'capital protected' option.

Interest You usually receive a lump sum which you can then invest as you please. Or you receive a lump sum and a regular income.

Interest paid Not applicable.

Tax This depends on whether payments form the scheme are capital (in which case there is not tax) or an annuity payment which is regarded as part income, part return of capital. The capital portion is not taxable but this amount depends on your age when you start the scheme. 20% tax is usually deducted from the income portion unless you are a non-taxpayer. However for older people the whole of the income payment can be tax free too.

Fees to pay Valuation costs, usually refunded if you go ahead. The companies pay their own legal fees.

Passbook None. The lender will buy your home (or a share of it) and hold the deeds. You may get an annuity contract from a life insurance company.

Children Not eligible.

Risk You may not be clear what you have signed up for.

How to use it Get quotes from the companies and compare them. Get independent legal advice from a solicitor you know and trust before signing up.

Where from AMP NPI, BPT Bridgwater (Home Reversions) Ltd, Brent Reversion Services, Carlyle Life, Cavendish Group, GE Capital, Home & Capital Trust Ltd, Investment Property Reversions.

Other forms of property investment

Last updated 2 September 2008.