Equity release – how will it affect inheritance?

Equity release can have its pros and cons but you may want to know how it can affect inheritance and the value of your home for when your estate is passed onto your loved ones.

Equity release allows you to borrow money based on the value of your home which is not repaid until you are in care or die.

This means you build up interest on the amount you will repay which can potentially build to a substantial amount for many years depending on when you borrow this money.

It is important to know that if you are considering equity release, you cannot leave your property to someone in your Will as it is a rule within equity release that properties must be sold when you pass away.

Partial repayments

An option you may want to consider for equity release is partial repayments.

Many plans will allow you to make partial repayments and this will have less of an impact on your inheritance.

In March 2022, the Equity Release Council announced the fifth product standard which allows all new customers to make a penalty-free partial repayment which could reduce the costs later on in life.

Inheritance Tax

Equity release has an impact on Inheritance Tax.

Beneficiaries have to pay Inheritance Tax of 40 per cent on wealth above £325,000 unless a spouse inherits their estate.

Money from the sale of your property is used to pay off the equity release loan and is not liable for Inheritance Tax.

If you use equity release money as a gift to children or grandchildren, Inheritance Tax will not need to be paid on this money after seven years.

Ultimately, equity release means your estate is worth less and could impact those you are planning to pass this on to the most.

For more advice on this, get in touch.

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