Equity release reduces what is left. This shows what that looks like over ten and twenty years, separates it from inheritance tax, which gets conflated with it constantly, and sets out what is worth saying to your family and when.
The mandatory wording says equity release will reduce the value of your estate. Here is what that sentence looks like as a number.
Equity release may involve a lifetime mortgage, secured against your property, or a home reversion plan. It will reduce the value of your estate and impact funding long-term care.
Look at the last row. Borrow £100,000, live another twenty years, and there is £16,965 left of a £350,000 house. Nobody is chased for a shortfall, because the guarantee prevents that, but there is very little to pass on either.
An illustration at a rate close to where the market floor has been sitting, with the value of the house held still. We do not forecast house prices and will not: if the property rises the picture is better, and if it does not, this is what happens.
| Borrowed | After | Owed | Left |
|---|---|---|---|
| £50,000 | 10 yrs | £91,246 | £258,754 |
| £50,000 | 20 yrs | £166,518 | £183,482 |
| £100,000 | 10 yrs | £182,493 | £167,507 |
| £100,000 | 20 yrs | £333,035 | £16,965 |
Most estates are below the threshold and never pay any of it. Check whether it applies to you at all before treating "it reduces inheritance tax" as an argument for anything: reducing an estate by £333,000 of interest to save £70,000 of tax is not a saving.
Normally no tax where “the value of your estate is below the £325,000 threshold”.
“If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren your threshold can increase to £500,000.”
“The standard Inheritance Tax rate is 40%. It's only charged on the part of your estate that's above the threshold.”
Exempt where “you leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club”.
“People you give gifts to might have to pay Inheritance Tax, but only if you give away more than £325,000 and die within 7 years.”
Most of the upset in this subject comes from a discovery rather than from the decision. Four things worth knowing before you have the conversation.
An adviser will suggest involving your family and will usually join the conversation if you want them to. Most of the distress in this subject comes from a discovery rather than from the decision itself.
Nobody has a right to an inheritance. Telling your family is a courtesy that avoids a shock; it is not asking permission, and an adviser should not treat it as though it were.
Some plans let you ring-fence a percentage of the property value so it cannot be consumed by the debt. It reduces what you can borrow, and whether it is worth it is exactly the sort of question advice is for.
Money given away can still count towards an estate for seven years, with taper relief in between. If the plan is to release money and give it to family, that is a tax question and it needs somebody qualified before, not after.
Equity release may involve a lifetime mortgage, secured against your property, or a home reversion plan. It will reduce the value of your estate and impact funding long-term care.
None of this is tax advice. Whether inheritance tax would apply to your estate, and what gifting would do, are questions for an accountant or a tax adviser. We are also not telling you whether reducing your estate is acceptable: that is between you and the people you would be leaving it to.
The second one takes a minute and rules the tax argument in or out for you entirely.
What would be left of the house at year ten, fifteen and twenty on my actual rate?
Ask for the illustration. It is a page of the document an adviser must give you and it is the one to take home.
Is my estate anywhere near the inheritance tax threshold?
Most are not. If yours is not, the tax argument does not apply to you and should not be used on you.
What does inheritance protection cost me in borrowing?
It ring-fences a share of the value. Ask for the figures both ways so you can see the trade.
If I want to gift some of this, what are the tax consequences?
A question for an accountant or a tax adviser, before the money moves rather than after.
Should my family be in this conversation?
Your call entirely. But an adviser will offer, and it is easier now than it is later.
Short answers to the things that come up most. None of it is advice, and every figure on this page carries its source.
On the illustration on this page, borrowing £100,000 against a £350,000 house and living another twenty years leaves £16,965. The value of the house is held still in that calculation, because we do not forecast house prices.
No. Nobody is chased for a shortfall, because the no-negative-equity guarantee prevents it. What the guarantee does not do is protect what is left over.
No, and the two get conflated constantly. Inheritance Tax is charged at 40% on the part of an estate above the £325,000 threshold. Reducing the value of your estate is a separate matter from whether any tax is due on it.
GOV.UK says that if you give away your home to your children, including adopted, foster or stepchildren, or to grandchildren, your threshold can increase to £500,000.
That is your decision and this site does not have a view on it. What is worth knowing is that the figures above are the ones a family is most often surprised by later, and they exist in writing on the illustration before anything is signed.
Equity release may involve a lifetime mortgage, secured against your property, or a home reversion plan. It will reduce the value of your estate and impact funding long-term care.
One qualified equity release adviser. They will go through your figures and tell you if there is a better answer. It costs nothing and commits you to nothing.
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