If you’re considering releasing equity from your property, you may be wondering how does equity release affect your inheritance? And can you leave an inheritance to your family when taking equity release?

The short answer is yes, it is possible to leave an inheritance to your family if you take equity release, although it might not be suitable for everyone’s circumstances.

Many older homeowners who are considering equity release admitted they are worried that their families wouldn’t approve and might think they’re spending their families’ inheritance.

In fact, surveys have revealed that families are usually supportive of their parents’ and grandparents’ decision to release equity and so these concerns are typically unfounded.

How to Protect Your Inheritance When Taking Equity Release

There are three main ways that you can protect your inheritance when taking equity release:

  1. Ring-fencing
  2. Repayment options
  3. Living inheritance

Ring-fencing with Equity Release

With some equity release plans you can ring-fence a portion of your property’s future value.

A Protected Lifetime mortgage or a Home Reversion Plan allow you to ring-fence a portion of your remaining equity and its future value to guarantee an inheritance to your family.

When you go into long term care or pass away and the property is sold, the portion that you have protected will be passed onto your loved ones regardless of how much is outstanding on the loan.

Although, if you choose to release more equity in the future this will reduce the amount of inheritance that you can guarantee.

A Voluntary Repayment Lifetime Mortgage

Another option that could enable you to leave an inheritance is a voluntary repayment equity release plan. With this type of lifetime mortgage, you have the flexibility to pay some of the interest, all the interest, or more than the interest.

By making repayments borrowers can avoid rolled-up interest and retain as much equity in their property as possible – maximising the inheritance they can leave to family and beneficiaries.

What’s more, borrowers have the flexibility to stop making repayments at any time, and instead, add the interest to their loan, then continue making repayments again at a later date if they wish to.

Learn more about voluntary repayment lifetime mortgages here >

What is a Living Inheritance?

As well as ringfencing some of the equity in your property for inheritance purposes, equity release also allows you to gift a ‘living inheritance’.

‘Living inheritance’ means to gift your inheritance while you’re still alive so you can see your loved ones enjoying your money and putting it to good use.

The idea of enjoying the money together is becoming more popular – and the growing appetite for equity release has a big role to play in this.

Many equity release borrowers use some of their funds to gift to family to help them get on the property ladder, or to clear debts for example.

When considering all or any of these three options you must seek both legal and financial advice before releasing equity from your property to ensure that it is a suitable decision for your circumstances.

Equity Release can Reduce your Inheritance Tax Bill

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.

In the 2017/18 tax year the average UK inheritance tax bill was £197,000 per estate with people in London and the South East paying even more. The average inheritance tax bill is increasing year on year as property values continue to rise.

This is one of many reasons why older homeowners are considering equity release – to avoid tax and pass on as much wealth as possible to their loved ones. Although, equity release is not suitable for everyone and should not be used just to reduce your inheritance tax bill.

Learn more about how equity release can help to reduce inheritance tax here >


Personal Retirement Planning is an independent equity release broker. We have a team of equity release advisers who are qualified to assess your financial circumstances and make suitable recommendations tailored to your needs. To learn more please contact one of our Equity Release Specialists, Barry Leigh, on 07980 210953 or email info@prpltd.co.uk.

Leave a Reply

Your email address will not be published. Required fields are marked *