Will using equity release affect my children’s inheritance?

Are you considering releasing equity on your home?

Are you considering releasing equity on your home? - Credit: Getty Images/iStockphoto

If you are over 55, you may be considering equity release as a way to release money that is tied up in your home. 

With over 80,000 equity release mortgages taken out last year, it has become a popular way to access a large tax-free sum that can be used to supplement a pension, make home improvements or gift money to your family.

The equity release process involves releasing 20% to 60% of your property’s value through a lifetime mortgage - so it continues to accumulate interest until you die or go into long-term care and the loan is paid off through the sale of your property. 

There are many considerations before taking out an equity release plan and one of these is whether it will impact your children’s inheritance and the money you leave to your beneficiaries. 

David Beard, founder of price comparison Lending Expert, explains: Taking out equity release will reduce the overall value of your estate, since you are either paying interest on the money you release (lifetime mortgage) or selling off a stake in it (home reversion).”

“When you die or go into long-term care, your beneficiaries have up to 12 months to pay off your outstanding debt - and usually selling the house on the open market will cover this. But ultimately, once the loan is paid off, anything left of the estate is available to your children as inheritance.”


You may also want to watch:


Will Taking Out Equity Release Leave My Children in Debt?

“No, this will not leave your children with a large bill to pay. Fortunately with a “no negative equity guarantee,” your children will never pay more than the outstanding value of the home - so they will not be left with debt after you are gone.”

Most Read

“The longer you live, the more interest you will be paying, so this will impact the overall inheritance. But on the plus side, you and your children will still benefit if the house increases in value over time, since you only pay back the amount owed for the equity release loan plus interest. Anything on top of that is yours.”

Will Equity Release Affect Inheritance Tax?

“If your children inherit less than £325,000 once the equity release loan has been fulfilled , there will be no inheritance tax to pay because it is below the taxable threshold. But anything above this amount will be subject to 40% tax which is not ideal.”

Should I Use Equity Release For Gifting To My Family?

“Equity release is very often used for gifting to help children and grandchildren to get on the housing ladder, to pay for weddings, school fees and more.”

“If you release equity for gifting, you have 7 years before you die for this to be exempt from inheritance tax. So you can release money, tax-free, and give this to your children and it will remain free of inheritance tax assuming you do not die within 7 years.”

“However, if you die within 7 years of making the gift, it will be included in the rest of your estate when calculating the tax.”

“With over 100 types of equity release products available, there are some products which help you put money aside for inheritance, so you can guarantee your children will receive a certain amount. You can also consider drawdown lifetime mortgages so that you release money every time upon request and only pay interest on what you use - helping you to bring down the overall amount of interest charged.”

For a free and no obligation quote for equity release, you can enquire with Lending Expert in less than 5 minutes.

Become a Supporter

This newspaper has been a central part of community life for many years. Our industry faces testing times, which is why we're asking for your support. Every contribution will help us continue to produce local journalism that makes a measurable difference to our community.

Become a Supporter