IT is one of those nagging issues that is simply not going to go away.
The so-called ‘equity release scheme’, a highly toxic product devised, marketed and sold by mostly Scandinavian banks to reduce inheritance tax and raise money is going to become a bigger and bigger story over the next few years.
Already covered in the Olive Press over recent months, it has left a number of British and other northern European clients based in Spain facing losing their livelihoods and homes.
The idea of taking capital out of their mortgage-free homes and putting some of it into under-performing investment portfolios to pay back the bank threatens to cripple their health and well-being.
And there is no visible end to it, save for decisive legal action – or a change in the Spanish law as currently the products are not regulated.
Unless there is a nationwide scandal the law is unlikely to change anytime soon. In the meantime, those pensioners caught in the trap are finding it difficult to repay the debt, particularly because the value of the investment portfolios are well below that of the mortgage loan. And many of them face losing their homes.
For once at least, Spanish banks have largely stayed well away from this unique form of lifetime pension or ‘reserve mortgages’, as they are called here.
Perhaps they could see that the concept was little more than an alleged tax fraud. The idea that by mortgaging a home and investing the proceeds in bonds, stocks or life assurance, would mean the beneficiaries of the owner’s will would pay less inheritance tax.
In my opinion this supposedly clever strategy falls foul of Spanish legislation on several points, namely:
1. They are an abuse of law, as by seemingly complying with the laws one pursues an illegal result. From a tax perspective, this happens when a specific action is not backed by economic logic, as would happen with the equity release proposition.
2. The advertising of these products – offering fantastic tax breaks, etc, is illegal
3. These products did not have clearance by financial and insurance regulators
4.?Shoddy banking practices offering highly complex financial products on unintelligible contracts to pensioners who, should be afforded the highest level of protection.
5. The use of unregistered, unqualified and inexperienced agents to market the schemes, which is illegal
Several clients have now decided to set up the Equity Release Victims Association (erva.es) to denounce the banks to the Government.
They hope to get a decision outlawing these schemes as illegal. All of which begs the question, why would hundreds of pensioners with their life-time savings buried in their retirement homes, re-mortgage them to invest the proceeds with a foreign bank, often in a tax haven?
This is no doubt, the result of gross mis-selling and it is my pleasure to be investigating it today.
Contact Antonio at Lawbird Legal Services
Edificio Alfil Floor 4, Ricardo Soriano, 19 – 4B, 29601 Marbella, Malaga (Spain) Phone: +34 952 861890 – [email protected] – www.lawbird.com