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Releasing income

I thought that the requirements of the client in the recent Best Advice column in Money Marketing were clearly stated.

She was 70 years old and was finding it hard to cope financially since the death of her husband, who had a predominantly pension-based income. Her home was worth £500,000 and the question was, could releasing income from her home be the answer?

The advice given discussed mainly the inheritance tax implications of releasing a lump sum and investing it in an investment bond written under trust. That can work for mitigating inheritance tax but is not necessarily the best way of releasing income.

Assuming 7 per cent growth, your adviser estimated that she would receive £43,000 over five years, or £8,600 per year. It does not need to be that complicated.

By using the Northern Rock cash plus equity release,Mrs Smith could have released £1,000 per month (£12,000 per year) tax-free and only been charged interest on the monthly amounts as they are released.

That may not be ideal for saving inheritance tax unless some of the income is used to buy life cover to pay the bill on death, however, Mrs Smith&#39s objective was income, not her inheritance tax bill.

I wonder why only the lump sum option was considered?

Anthony Lumley

Home equity-release specialist,

Northern Rock,

Nottingham

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