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Home Reversion Schemes - An introduction

Home reversion schemes (HRSs) are one method of raising an income or a lump sum from the capital value of your home. With a reversion scheme you sell all or part of your home to a company or an individual and continue to live in it as a tenant rather than the full owner. In practice, this makes very little difference since you still have the full right to live in the property for your lifetime. On your death the company receives the full value of the part of the property you have sold (eg half or even all), including any increase in value on that part. Your estate will of course benefit from any part you still own, including any increase on that part.

Although you have parted with ownership, you do normally remain responsible for any repairs and maintenance. The rent you pay is usually nominal at about £12 a year, but check the amount carefully as some companies may charge more.

Some companies provide an annuity (which will give you a guaranteed income for life), some pay a one-off lump sum, while others offer a combination of both. Occasionally, some may offer the lump sum as staged payments. Any cash amount you receive will be much less than the market value of the property - usually between a third and a half. Sometimes, depending on your age and sex, the amount is even lower because of the length of time you are likely to continue living in your home before the company recoups its investment.

A disadvantage with this type of scheme can be that you are selling your home for a fixed amount and when you die any increase in the value of the portion sold goes to the buyer rather than to your estate. The value you receive, whether in the form of a lump sum or a regular income, will of course be eroded by inflation.

However, some schemes incorporate a form of indexation, where the income is linked to property values. Another way of dealing with the problem, to some extent at least, is to sell only part of the property. You still retain part ownership, and your heirs will receive some benefit from the property, including any increase in the value of the part you still own. A part sale also allows you in the future, if you wish, to sell another part of your property - taking advantage of any increase in property values in the interim -and further boost your income. By doing this you could benefit from the higher annuity rates available when you are older. The higher the property value, the higher the potential income is likely to be, but, of course, you will be giving up more since the value of the part sold will also be higher.

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