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Equity Release

Learn More About Equity Release Options

Equity Release mortgages are not like residential mortgages. They help you secure a loan against the value of your property. In these guides we outline what makes them different, the eligibility criteria and help you decide if it’s an avenue you would like to pursue. It’s a way to free up money in your later years, but with many factors influencing the loan, it’s good to learn as much as you can from qualified mortgage professionals.

Posted On: August 19, 2021
Updated On: November 3, 2022

Does Equity Release Affect Inheritance Tax?

If you’re considering acquiring an equity release mortgage, one of the many questions you may have is whether it could affect inheritance tax.

The simple answer is yes it does. In this helpful guide, we’re going to explain exactly how.

What is inheritance tax?

Inheritance tax is calculated based on the value of your estate. It is payable after the homeowner has deceased and when the property has been passed onto a beneficiary.

How does equity release affect your inheritance tax?

How much inheritance tax is payable really depends on how much equity you release on the property. Release all or most of it, and you may fall below the threshold and be exempt from paying any inheritance tax at all.

The more you reduce the value of your estate, the lower your inheritance tax bill.

You can ring-fence portions of your property to remain inheritable, and the value of that portion will be taxable once inherited – assuming it’s above a certain value threshold.

Is it that simple?

However, it’s not quite as simple as this. It is also dependent on whether the equity released is spent and not invested. If you use your equity to invest in a buy-to-let property for instance, that will be factored into your inheritance tax. Whereas if you choose to spend your equity on a once in a lifetime cruise to the Caribbean then this wouldn’t be factored into your inheritance tax bill.

In conclusion

Whether you sell your home to an equity release provider or choose to pay off your loan with the value of your property once you’ve passed away, this will mean the property cannot be inherited, meaning there will be no inheritance tax payable on that particular asset.

However, equity release may only reduce the amount of inheritance tax that would be owed on your property rather than remove it completely – it all depends on how much equity you release and whether you choose to ring-fence parts of the property.

An obvious downside of equity release is that your loved ones won’t be able to inherit the entire value of your property. This is something to consider before choosing equity release, but there are certainly plenty of benefits. Releasing equity on your property allows you to receive tax-free cash in your older years to either enjoy your retirement, invest, or even help your children or grandchildren buy their first home, get married or pay off their debt.

We hope this guide has cleared up your questions surrounding how equity release affects inheritance tax. If you’re considering using the value of your property to free up some cash, speak to Agentis today. We are a professional team of mortgage brokers who can help you make sense of the market and find the right package for your needs.