The Equity Release Council has welcomed the government decision to continue offering relief for interest on loans previously taken out to purchase life annuities, which can be worth more than £500 a year, following a consultation by HM Revenue and Customs.
In July, the government launched a consultation on whether it should withdraw relief for interest on loans to purchase life annuities. It subsequently decided not to withdraw relief for interest on loans taken out to purchase life annuities by people aged 65 or over before 1999.
The Equity Release Council gave its backing to the decision, adding that with the youngest beneficiary now at least 85 years old, the change would have a significant financial impact on those affected at a time when they are less likely to be able to adjust to a loss of income.
The trade body for the equity release sector also said there were likely to be a higher number of people affected than the published estimate of 1,000 and that the change could have meant a financial hit of more than £500 a year.
Nigel Waterson, chairman of the Equity Release Council, said: “People need certainty in dealing with government-backed tax incentives during retirement, as they do with many other aspects of financial planning for later life.
“The council and its members work hard to promote confidence, security and life-long guarantees within the equity release industry, and we are encouraged to see the same principles have resulted in a fair decision against imposing a retrospective change to these loan arrangements.
“The decision will allow those elderly annuity customers who were banking on this income continuing – which we believe amounts to more than £500 a year – to rest easy, rather than preparing for a potential worst-case scenario where its loss might leave them facing heightened poverty.”
Six of the seven respondents to the consultation advocated maintaining the relief, arguing that the impact of withdrawal on a small number of elderly and vulnerable people outweighed the benefits of simplification, ERC said.
Furthermore, a number of respondents suggested that the consultation document underestimated the value of the relief in terms of both the number of people benefitting and how much the relief was worth to them.
Estimates of around £550 per annum per individual were put forward compared to the £456 set out in the consultation document. One respondent pointed out that the £8.76 per week (estimated by the Office of Tax Simplification) was equivalent to 8 per cent of the basic state pension.