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Can Equity Release Affect Inheritance Tax?

Equity Release is a loan that is placed against the value of your property. It’s available for people over the age of 55. The loan and interest will need repaying. The money to pay back the loan will typically come from the sale of your property when you die or go into long-term care.

This reduces your estate’s value. This will impact the amount of inheritance tax that will be paid in the event of your death. You may even have no tax payable if the value falls below the threshold.

How does inheritance tax work?

Regardless of whether you have an equity release plan or not, inheritance tax won’t need to be paid back in the following circumstances:

  • The value of your estate is below the £325,000 threshold.
  • You leave everything above the threshold to a spouse, civil partner, charity or community amateur sports club.

The inheritance tax rate will only be charged on the part of your estate that’s above the threshold.

Who pays inheritance tax?

Those who inherit the estate will not be liable to pay the inheritance tax. Instead this is paid to HM Revenue & Customs through the funds from your estate.

What are the rules if you gift your equity release money before you die?

A common reason people take out an equity release loan is to support family members, such as children and grandchildren. If you give some of your borrowed money to family members before you die, the recipients may be subject to inheritance tax. This only applies if the amount gifted to a single individual was over the threshold of £325,000 and if you die within seven years.

If you die within three years, 40% of anything over £325,000 will be taxed. This percentage gradually decreases year-on-year until the seven year threshold is reached.

When you take out the loan, you can choose to ring-fence a portion of the property’s value. This means that a portion of the value can be gifted to a beneficiary after you die.

We hope this article has answered your questions on how equity release can affect inheritance tax. If you have any further questions, contact our team of expert mortgage brokers in Northampton.


Equity release will reduce the value of your estate and can affect your eligibility for means-tested benefits.

Your home may be repossessed if you do not keep up with repayments on your mortgage.

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