If you’re thinking about unlocking money from your home through equity release, it’s natural to wonder how it might affect your taxes. After all, nobody wants a surprise bill from HMRC!
The good news is that equity release is usually tax-free — but there are still some important things to consider, especially when it comes to inheritance, benefits, and estate planning. Let’s break it down in a clear and simple way.
Is Equity Release Taxable?
No — the money you receive from an equity release plan is not classed as income, so it’s not taxed like a salary or pension would be.
Instead, it’s treated as a loan secured against your home, and loans aren’t taxed.
Whether you choose a lifetime mortgage or a home reversion plan, the lump sum or regular payments you receive are tax-free.
Will Equity Release Affect My Income Tax?
Not directly. Since it’s not income, it doesn’t affect your tax band or how much tax you pay each year. However, if you invest the money and earn interest, that interest may be taxable.
For example:
Does Equity Release Affect Inheritance Tax?
This is where things get a bit more interesting.
If you don’t spend the money you release and it stays in your estate (e.g. in savings), it could still be liable for Inheritance Tax (IHT) when you pass away.
But equity release can also be a useful estate planning tool. Here’s how:
Equity Release Can Reduce Inheritance Tax
Since equity release is a loan against your property, it reduces the value of your estate — which means your estate could fall below the IHT threshold (currently £325,000, or up to £500,000 including the residence nil-rate band if passing to children or grandchildren).
This means your beneficiaries might pay less inheritance tax.
However, it’s always a good idea to speak to a financial adviser or estate planner about this, especially if your estate is near or over the threshold.
How Does It Affect Your Property Value for Tax?
Your property still counts as part of your estate when you pass away. But because the equity release loan is repaid from the sale of your home, it’s deducted from your estate’s value before IHT is calculated.
So for example:
Does Equity Release Affect Your Benefits?
While it’s not a tax issue, it’s still worth mentioning — if you receive means-tested benefits like Pension Credit or Council Tax Support, having a large lump sum from equity release could reduce or stop those benefits.
That’s because they check how much money you have in savings. If your equity release funds sit in a bank account, it could push you over the threshold for support.
An adviser can help you plan the best way to take your funds (e.g. monthly income instead of a lump sum) to avoid this.
Final Thoughts: Keep It Tax-Savvy
Equity release can be a smart way to access money in retirement, and most people are pleased to hear it’s tax-free at the point you receive it.
But if you’re planning to use the money for gifts, investments, or estate planning, it’s worth getting advice to make the most of it — and avoid any tax surprises later on.
Need Help Understanding Your Options?
If you’re thinking about equity release and want to understand how it might affect your personal finances or estate, we’re here to help.
Our advisers can guide you through it in plain English, and even run an instant calculation to show how much equity you could release from your home.