Do you have savings?

Welsh wife, very interested in your comment about being unable to replace savings after a majority outlay. What I do to try to combat this is to take interest free credit wherever possible. This way I eke out the outgoings whereas I would never replace capital. Has worked in the past but it's a constant juggle.

Trouble is that sometimes if there have been savings on the goods if you opt for the credit you pay the full price - this is certainly true of big items like cars. DH had bumph through to post about so much off and then the 0% offer - I worked out the payments over whatever length of time it was and you were paying full maunfacturer's price. I always try and read the small print.
It is of course your disposable income which is so important rather than what comes in if you have mortgage or rent to pay. I know someone who was not allowed to continue working after a certain age and she could not afford the mortgage on her pension - and of course no housing benefit is payable on mortgages as it is on rent - so she had no option but to sell up and buy a cheaper house outright.

I never think of homes, holiday homes, cars as savings, the money is not available to spend or use in any way.

Oh I would think that if I needed they could be sold to raise funds . I know people who call themselves poor but own several (paid for) properties which is definitely not my idea of being poor.

Gillybob, But, to me my paid home is not exactly savings either. Not sure what my home is, but it does not seem to fit savings, to me. Maybe it is just a blessing.

I also do not think my home or property would sell quickly, so it really is not a source of readily available savings, is it?

Oh my home isn't savings either Norah it's the roof over my head . Apologies if I didn't make this clear.

Gillybob, Yes that's it, my home is roof over my head and blessing that it is paid. I am certainly wishing the overall maintenance cost was less.

A home has a value. It is an asset. Perhaps not one as readily realised as cash in the bank, or even stocks and shares and not much use if you need a new washing machine.

But the value in it can be released through equity release and lifetime mortgages and used for what you like from new white goods, a new car or a holiday or house improvements.

Equity release is an expensive con if you work out the interest thy will eventually charge.

I do not think equity release works as the rosy coloured picture. There is too much cost and you lose the value to your home.

Is there a rosy coloured picture of equity release? It is a very useful way of releasing capital but needs to be thought through, but for some people it is a good option.

A friend of mine has used it to reduce her potential liability for inheritance tax. she has no children but nieces who need to get on the housing ladder . She has taken out an equity release scheme, given money to her nieces at an age when she can reasonably hope to live seven more years and her estate is now below the inheritance tax level.

She pays the interest on the mortgage so that that is not mounting up and her nieces will inherit the rest of the estate when she dies. If interest rates rise she can always opt to roll the interest over or just pay some of it and roll over the rest.

Will the neices look after her if she needs long term care?

She can afford to pay for any care she may need herself, but she is part of a very loving and supportive family and family support would always be there for her.

M0nica, very interesting, that. We do spend liberally to reduce our potential liability for inheritance tax. We did give to our daughters at an age when we could and did reasonably hope to live seven more years. But, if that giving was eaten up by interest I do not see the point. My maths are always awful, I question the interest bit. Please explain.

She pays the interest on the mortgage so that that is not mounting up and her nieces will inherit the rest of the estate when she dies. If interest rates rise she can always opt to roll the interest over or just pay some of it and roll over the rest.

M0nica, "She can afford to pay for any care she may need herself" I think this may be a bit to the fundamental question, or it is what I hear. When does divesting assets for lowering liability to estate tax make an equilibrium with keeping enough assets to live an indeterminate rest of life?

I know my answer is to spend not save, but I do have a husband to shoulder that worry and hold my spending back a bit.

That's the fundamental question norah and Monica. If we could be sure that would help but we can't know how our care needs might escalate or again might not!
Insurance of some sort would be good.

YES, Jane10, that is why I see a plan involving assets and care insurance as implicitly fair.

My friend's house is valuable, so she still has a significant amount of capital left in it after giving money away. The inheritance tax limit is £325,000. Because she has a substantial pension income, if she went into care much of her care would be paid from income with capital topping it up, although if her property were let, she lives in central Oxford, it would probably cover the difference. So her capital assets would probably last, much longer than she would.

On interest, you do not have to roll up the interest when you take equity release. You can choose to pay the interest, as if you have an interest only mortgage, but say mortgage rates double or more, (remember 10% mortgage rates?) my friend can then opt to roll up her interest or roll up part of it.

This example is all getting rather detailed and laboured. The point I was trying to make is that Equity release is a marmite product, for some people, like my friend it is ideal. It enables her to help her nieces when they both need help and because she has a sufficiently large pension she can comfortably pay the interest rather than rolling it up and still not have to worry about paying for care should she need it. For other people it is a totally unsuitable product for a variety of reasons.

M0nica, "My friend's house is valuable, so she still has a significant amount of capital left in it after giving money away. The inheritance tax limit is £325,000. Because she has a substantial pension income, if she went into care much of her care would be paid from income with capital topping it up, although if her property were let, she lives in central Oxford, it would probably cover the difference. So her capital assets would probably last, much longer than she would."

This is precisely what I post in this and the other thread. I did not understand the interest maths, and never will, that is why I asked to that bit. But without equity release, because I am daft on that bit, I arrive at the same conclusion as to the assets of home and pension.

Norah you either pay the interest monthly as you would with an interest only mortgage or the interest gets added to the capital you borrow instead, so that you make no payment and you then pay interest on the new higher balance.

An example
You borrow £10,000. First year interest is £1000, which you roll up, so at the end of that year you have borrowed (£10,000 + £1000) £11,000. The next year you incur another £1000 interest on the £10,000, plus interest on the £1000 interest you didn't pay the previous year, which is £100. So the capital you pay interest on the second year is (£11,000 + £1,100) £12,100. so each year the balance owed by your estate rises by the added interest, on the new cumulative sum. So the debt owed back increases with each year.

As far as the value of her assets go. She is still living in the same house with the same high value but when she dies the money she has borrowed - and spent - will need to be repaid so it is a debt to be paid from her total estate.

Let us say her house and any savings are worth £400,000 and she borrowed £75,000. The value of her estate after repaying the equity release loan, for that is essentially what it is, will reduce the value of her estate to £325,000. Inheritance is paid on the value of your estate after paying all your debts. so no inheritance tax will be due.

A pension is an income and dies with the death of the recipient, so that does not come into any calculations on inheritance tax.

I know pensions go away, but pensions can and do pay for care or living expenses for the living people. I was mixing uses of assets, sorry I was not clear. Thank you for explaining the interests, I will never understand maths, but that is to me not your writing.

This thread should be read alongside the
who will pay for your care thread. Infact they should be merged.
Squirrelling money away to avoid tax just leaves someone else ( possibly with very little) to pay for your future care.

Yes, Gillybob, the 2 threads seem a good fit. But I do not see anyone squirreling money to avoid care fees.

I and others do advocate lowering assets for estate tax, a totally different matter to care.

This tax does not affect us but in France if you have more than I think it is 1.3million in assets (not including your home) you need to pay a wealth tax yearly. This does affect people who have their own pension fund as that is counted as an asset. I have no idea of the percentage etc.
Maybe something like this could be levied in UK to help with the care fee problem.