As inheritance tax bills increase, more and more people are looking for ways to reduce their inheritance tax liability and equity release can be an option for some.

What is Equity Release?

Equity release allows you to access the cash tied up in your home via a loan that is secured against the value of your property. With equity release you do not have to make any loan repayments during your lifetime. The loan is typically repaid upon death or when you go into long term care.

What is Inheritance Tax?

Inheritance tax is payable on the estate of someone who has passed away, that includes their property, money, and possessions. The standard inheritance tax rate is 40% of the value of the estate. The executor of the estate will arrange for the tax to be paid to HMRC and the remaining assets will then be passed onto the beneficiaries.

Rising Property Wealth

When it comes to leaving an inheritance to loved ones and thinking about inheritance tax, property is the single biggest issue as it typically accounts for the majority of peoples wealth. According to Nationwide Building Society, the average UK home has soared in value by 53% since April 2009, and in some parts of the country property values have increased by as much as 90%.

However, while property prices have increased significantly, the inheritance tax threshold has remained the same at £325,000. If the value of your estate is below the £325,000 threshold there is usually no inheritance tax to pay. Tax is only payable on the portion of your estate that is above the threshold.

As property values continue to rise and the threshold remains the same, more and more people are liable to pay tax.

In 2010/11 UK inheritance tax receipts totaled around £2.7 billion and have increased year on year to more than £5 billion in 2019/20.

In 2017/18 the average inheritance tax bill was £197,000 per estate with people in London and the South East paying even more.

However, through careful planning many people can avoid or reduce their inheritance tax bill and potentially save hundreds of thousands of pounds that would otherwise go to the tax man unnecessarily.

How can Equity Release help reduce Inheritance Tax?

To reduce your inheritance tax bill, you need to reduce the value of your estate. For example, by gifting money and assets to loved ones. However, when it comes to property it can be more difficult to avoid tax.

You could sell your home and downsize, but many people would prefer to stay in their home and avoid the hassle and costs that come with buying and selling property, especially later in life.

Instead of selling up, you could release equity from your home. By releasing equity, you can continue living in your home for the rest of your life, gift money to loved ones, and enjoy the money together while you are still alive!

When you release equity from your property, you reduce the value of your estate which usually means there will be less inheritance tax to pay upon death.

The 7-year rule

If you give away more than £325,000 worth of assets in the 7 years before you die, those gifts will be counted as part of your estate and will be subject to inheritance tax. The percentage of tax payable is tapered depending on the number of years between when the gift was made and when you die.

Years between gift and deathAmount of tax to pay
Less than 340%
3 to 432%
4 to 524%
5 to 6 16%
6 to 78%
7 or more0%
Tax year 2021/22

With this in mind, the sooner you can give away money and assets to loved ones the better.

What to consider

Some people may be concerned that by taking out an equity release plan they are reducing the amount of equity in their property and leaving less inheritance to their family.

There are some equity release plans that allow you to ringfence a portion of your property wealth to guarantee an inheritance. These include a ‘Protected Lifetime Mortgage’ and a ‘Home Reversion Plan’. The more equity you wish to protect, the less you can release from your home.

Equity release is not suitable for everyone and should not be used just to reduce your inheritance tax bill. Some of the most common reasons why people release equity are to supplement their retirement income, pay off credit cards and loans, help their family get onto the property ladder and to make home improvements.

If you are considering equity release you should seek specialist advice to understand whether it is right for you. It is also important to receive the right advice about inheritance tax and estate planning.

At Personal Retirement Planning we provide tailored equity release advice and can also offer inheritance tax advice via our partnership with Strathmore Wills & Estate Planning. If you would like to learn more and to speak with one of our Equity Release Specialists, please call Barry Leigh on 07980 210953 or email

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