The over-65s have seen the value of their property rise by £26,000 tax-free in 2016, new analysis from over-55s financial specialist Key Retirement reveals.
Total property wealth owned by retired people who have paid off their mortgages has now hit a new record high of £1.03 trillion – a massive rise of £114 billion this year alone.
Separate figures released yesterday reveal that rising house prices have thrashed rival sources of pensioner income over the last 20 years.
Prices have risen twice as fast as pensioner incomes since 1995, increasing by 148 per cent from £82,100 to £203,360.
Income from all sources, including state, personal and company pensions, as well as private investments, has risen a more modest 66 per cent from £12,664 to £21,026 a year in that time.
This means the typical UK house price is now almost 10 times the size of the average pensioner’s annual income, according to new analysis of official figures by the Equity Release Council.
Growing numbers are using this wealth to top up their pension income, either by downsizing to a smaller property or by unlocking the capital in their home via an equity release scheme.
And their children and grandchildren will be major beneficiaries, as much of the property wealth will be passed on in an inheritance.
Families must plan carefully or risk passing over large sums to HM Revenue & Customs (HMRC) in inheritance tax. Nigel Waterson, chairman of the Equity Release Council, explained house prices have experienced dramatic growth over the past two decades, which has given many home owners’ equity a significant boost.
“Strong housing market fundamentals mean that housing equity is likely to remain a sizeable asset for the foreseeable future.”
Dean Mirfin, technical director at Key Retirement, said the figures highlight the long-term benefits of owning a home.
“During a period of historically low interest rates and stock market volatility, pensioners who have paid off their mortgages have been able to rely on steady tax-free returns from their home.”
He added that this shows the importance of property to retirement planning, as more pensioners dip into their home’s value to top up income.
Equity release allows homeowners to borrow against the capital value of their home, without having to make any repayments while they’re alive, unless they choose to do so.
The debt is typically cleared from the proceeds of their house sale when the owner and their partner either die or go into care, with the remainder going to beneficiaries.
Mirfin said this helps many cash-strapped pensioner homeowners clear debts, boost their spending power, do up their home, enjoy a holiday or help children or grandchildren out financially.
“Our average customer releases more than £76,000, which can make a major difference to your quality of life in retirement.”
Downsizing is another option, although the benefits must be set against the added cost and upheaval of moving.
Inheritance tax receipts have also hit a record high of nearly £4.7 billion as HMRC reaps the benefit of rising house prices.
Jessica Broxup, solicitor at Wilsons, said: “Grandparents must plan ahead to know that the money they leave to their children and grandchildren is not going to be eaten up by tax unnecessarily.”
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