Bridging the Gap with the Next Generation? The New Intergenerational Mortgage

Although planning and investments may be more your thing, how would the introduction of the Japanese-style intergenerational mortgage affect your advice with clients? And does it present an opportunity to bridge the gap with the next generation too?

The intergenerational mortgage is designed to span multiple generations, with borrowers taking out ultra-long-term mortgages, often 50 years or more, with the expectation that their children will inherit both the property and the remaining debt.

What if I told you that there’s something very similar already in place that goes further, sitting outside of the estate, hence lowering CGT?

For many advisors, giving their clients a product which allows them to spread repayments over much longer periods could provide wider planning opportunities.

In our current system, mortgage debt must be cleared before we die, with lenders having maximum age caps where the loan must be repaid, typically 75-80 years old.

But if lenders allowed an increase to their upper age limits, the debt could be repaid by the borrower’s estate on death.

And this is exactly what the Independent Retirement Communities (IRCs) purchase model enables people to do. Rather than being a lender for a mortgage or equity release, in this case a deferred fee is paid as a percentage of the sale price, which can give up to 35% of the property value back to the provider.

As this falls outside of the estate, it offers opportunities for tax mitigation.

This includes potentially lowering the liability for IHT and CGT

Looking at socialising opportunities in retirement living can help to restore a sense of purpose and identity

And we’ve seen first-hand how this can bridge the gap with the next generation.

As an advisor, you can help them understand the positive implications of this type of scheme. Often, they see a deferred fee as reducing their inheritance, without fully realising the benefits of tax reduction. And an advisor can help them see the benefits of living within an IRC, both for their parent and for themselves.

So, it not only facilitates an introduction but also trust in the advisor who is helping their parent.

We can help you to understand more about the IRC purchase model so you can talk knowledgeably to your clients and their families. To find out more see: https://www.riverstoneliving.com/advisors