How to talk to family about equity release

This content was reviewed and approved by Amy Fletcher.

The information on this page should not be considered as financial advice. If you are unsure what’s right for you, please make sure you speak to a financial adviser.

Equity release is a major financial decision that will reduce the amount of inheritance you can leave behind. That’s why it’s important to discuss the implications of equity release before going ahead.

If you’re considering equity release, this article offers guidance on how to talk to your family about releasing equity.

How does equity release work?

If you’re aged 55 or over, equity release is a way of unlocking tax-free cash from the value of your home without having to sell up or move out.

There are different types of equity release, the most common being a lifetime mortgage. It’s a long-term loan secured against your home that’s paid back plus interest when you die or enter long-term care.

Many people consider downsizing or equity release when planning for their retirement. One of the main advantages of equity release is that you retain ownership of your property, so you can continue living there.

If you’re thinking about equity release, whether to boost your retirement income, help others financially, or for any other reason, there’s much to consider. That’s why it’s important to talk to your family about the pros and cons of equity release to ensure you’re making the right choice.

Why is it important to talk to family about equity release?

Equity release is a big decision that should be based on your needs and circumstances. If this is something you’re thinking about, you may also want to consider its impact on your family.

When you pass away or if you go into long-term care, your lifetime mortgage must be repaid. Releasing equity from your home during your retirement will reduce the amount of money you’ll leave behind for your beneficiaries. Therefore, involving others may help you decide whether equity release is the most effective way to meet your financial goals.

For example, talking to family may raise new questions about equity release or bring a fresh perspective that you may not have thought about. Either way, involving family members in your decision can be beneficial when considering equity release.

Is equity release right for me?

If you’re thinking about equity release, it’s a good idea to talk to a financial adviser from the outset. They’ll review your finances, get to understand your retirement goals, explain the benefits and disadvantages of lifetime mortgages, and answer any questions you may have.

While equity release provides access to money tied up in your property, it doesn’t suit everyone. Your financial adviser will help you decide if it’s right for you based on the information you provide. If leaving an inheritance is particularly important to you, make sure you raise this with your financial adviser.

Once you’ve weighed up the pros and cons of equity release, you should discuss them with your family. That way, everyone understands how equity release works and the benefits, costs and risks of lifetime mortgages. There also won’t be any surprises for your loved ones after you pass away or move into long-term care.

Are you considering equity release?

If you’re considering equity release, having the support and understanding of loved ones can help you through the process. Family members can join you at equity release appointments and offer new perspectives you may have overlooked. This can be particularly helpful when making such a big decision as equity release.

Including family early on means they’ll know how releasing equity from your home could affect any inheritance when you pass away. It’s also reassuring to know the equity release industry is regulated by the Financial Conduct Authority (FCA), providing peace of mind.

The Equity Release Council (ERC) also has industry standards designed to protect customers who release equity, like no negative equity guarantees. That means if your equity release product meets ERC standards, you won’t owe more than the value of your home when it is sold, and your family won’t inherit the debt when you’re gone.

You can see how much equity you could release from your home using our free equity release calculator.

How does equity release affect inheritance?

In most cases, releasing equity through a lifetime mortgage will reduce the amount of inheritance you can pass on. That’s because interest is added not just to the original loan, but also to the interest that builds over time. This is known as compound interest, and the amount you owe can significantly grow unless you make repayments.

The equity you release plus the interest you’ve accumulated is usually repaid from the sale of your home when you die or move into long-term care. This could end up reducing the amount of inheritance your family could receive when the property is sold. In the worst case, you run the risk of leaving them with nothing at all.

If your family want to live in your home after you pass away or move into long-term care, they would need to have separate funds to pay off the lifetime mortgage and interest. With most lifetime mortgages there is no risk of repossession during your lifetime, however if your estate does not repay the amount due, then your home could be repossessed. Equity release plans from ERC providers allow you to make some flexible payments without incurring charges. This can reduce the level of compound interest and leave you with more money to pass on. 

You can also take out an inheritance guarantee (also known as inheritance protection) that protects a percentage of your home’s sale price to leave as an inheritance or when you move into permanent care. You’ll need to do this when applying for a lifetime mortgage, and your equity release provider won’t be able to add this on later. However, taking out an inheritance guarantee will reduce the amount of money you can borrow, and it could also raise the interest rate on your lifetime mortgage.

Can equity release reduce inheritance tax?

Yes, equity release can reduce inheritance tax in some cases.

Your inheritance tax liability is based on the size of your estate. This includes all the property, money, savings, assets and possessions you leave behind when you die. By releasing equity from your home, you’re reducing the size and value of your estate, so you’ll pay less inheritance tax.

Depending on how much equity you release and the value of your estate, you may even fall beneath the current inheritance tax thresholds, so you won’t pay any inheritance tax at all. However, it’s important to realise this is dependent on you spending the equity release money and not investing it elsewhere. The interest which is charged on the lifetime mortgage may also be higher than any benefit from reducing the inheritance tax.

Inheritance tax rules are complex and prone to changes in government legislation. For this reason, you should always seek professional financial advice and keep your loved ones in the loop about any decisions you make regarding your future financial options.

Are you considering equity release?

Is equity release something you’ve considered? Maybe you’re looking to boost your retirement income or want to help your family financially? Talking to loved ones and an equity release adviser can help you make the right decision. You can also contact us today to discuss your options.