Lifetime Mortgages and Inheritance Tax

For most people their house will be the largest asset they own, and form the majority of their estate when they pass away. 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 or charges.

Depending on the type of Lifetime Mortgage you take out, the amount you owe can increase at different rates. This will depend on many factors, such as the interest you accrue, and whether you make any repayments.

The balance of the Lifetime Mortgage at the time of your death will be settled through the sale of your property. 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 remainder of your estate would be subject to inheritance tax.

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 owe more than the value 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 you will leave nothing to your next of kin.

If you wish to ensure you leave an inheritance, you have a number of options:

  • Many Lifetime Mortgages have an interest repayment option, meaning the total balance of your Lifetime Mortgage doesn’t increase, or increases much slower than if you made no repayments.
  • Many lenders offer an option to ringfence a portion of your estate for your next of kin.

Considering a Lifetime Mortgage

In the video below, two of our Advisers Anna and James, run through the various circumstances in which you could consider a Lifetime Mortgage.

If after watching the video you're interested in finding out more, our advisers can answer any questions you might have. Click here to book a free initial consultation.

Find out more

Equity release can be a great way to release some of the value in your property, our pros and cons of equity release guide could help answer some more of your questions.

Read our guide