House Price Surge Pushes More into Inheritance Tax Net, Equity Release Can Help
Soaring house prices are increasingly pushing people into the inheritance tax net. The inheritance tax threshold stands at £325,000 for individuals and £500,000 if the main home is passed to direct descendants. However, strategies like equity release can help mitigate this burden.
Equity release allows homeowners to access the cash tied up in their property while continuing to live there. This can help reduce the value of an estate, potentially lowering the inheritance tax due on it. Among Canada Life's customers in the first half of 2025, making home improvements was the top reason for releasing equity.
Married couples can also plan their estates effectively by pooling their allowances. This could allow them to pass on up to £1million tax-free if they leave their home to direct descendants. However, it's important to note that gifting money from equity release may still be subject to inheritance tax if the giver dies within seven years. Labour's plans to include unspent pension cash in inheritance tax from April 2027 could further push more estates over the tax threshold.
The trend of using equity release to gift money to family or friends is also on the rise. In the first half of 2025, 22% of equity release applicants planned to give away some or all of the money, up from 13% in the same period the year before. However, it's crucial to consider that interest on equity release loans compounds over time and can be substantial, especially if the borrower lives for a long time.
With house prices surging, more people are at risk of paying inheritance tax. Equity release can be a useful tool to manage this, but careful planning and understanding of the risks involved are essential. Labour's proposed changes to inheritance tax rules further highlight the importance of staying informed about these matters.
