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Equity release, inheritance tax and your estate

When you release equity from your home how does it affect the value of your estate and your inheritance tax obligations?

Lifetime mortgages reduce the value of your estate

Your house is probably the largest asset you own, and will probably represent most of your estate when you die.

When taking out a lifetime mortgage, you are using a stake in your home as a security for the money you borrow. This can have the effect of reducing the value of your estate by the original amount of the lifetime mortgage, plus any interest and charges.

Find out more about lifetime mortgages here: How does a lifetime mortgage work?

The amount you owe can increase

Depending on the type of lifetime mortgage you take out, the amount you owe can be affected by different factors such as the rate of interest charged and whether or not you choose to make any repayments.

You’ll never owe more than your home is worth

Remember that all lifetime mortgages come with a No Negative Equity Guarantee, meaning, as long as you abide by the terms of the loan, you will never have to pay back more than the amount that is received from the sale of your home.

Ensuring you leave an inheritance

As with any loan, interest is charged on the balance over time. If no interest payments are made, the balance of the lifetime mortgage plus interest may mean that there is no equity remaining in your home to leave for your next of kin.

If you wish to ensure you leave an inheritance, you have some options:

Payment options

Some lenders offer payment options so you can pay off part of the loan or its interest to manage the growth of the loan over time.

Ringfencing

Many lenders offer an option to ringfence a portion of the equity in your home to leave to your next of kin.

Equity release & your inheritance tax obligations

The balance of the lifetime mortgage at the time of your death will be settled through the sale of your property. For example, if your property is worth £500,000, and the total owed on your lifetime mortgage is £50,000, the net contribution of your property to your full estate will be £450,000 after your lender is repaid. The remaining value of your estate will then be taken into account when calculating what, if any, inheritance tax is payable.

Is equity release right for me?

Equity release is a big decision, and a big financial commitment. The money you release from your home with a lifetime mortgage can affect your entitlement to means-tested state benefits. A lifetime mortgage will also reduce the amount of inheritance you'll leave behind.

Our qualified, experienced advisers at OneFamily Advice will ensure that you clearly understand the implications of equity release, and will take the time to understand your individual circumstances before making their recommendations. They don't work on commission, so they only have your best interests at heart.

You can have a free, no obligation chat to find out whether equity release could be the right option for you. Then, if you decide to proceed, we charge a single advice fee of £950 on completion - no matter the size of your loan.

Have a free chat today

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