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Over one-fifth of individuals utilizing equity release schemes intend to distribute part of the funds, as senior property owners seek methods to circumvent Labour’s proposed increase in inheritance tax.
The insurance and equity release company, Canada Life, stated that in the first half of this year, 22 percent of those applying for equity release mentioned they intended to give part or all of the funds to relatives or friends.
During the same period in the previous year, only 13 percent of applicants indicated they would donate part of the money.
It follows Rachel Reeves’ initiative to include unused pension funds within the scope ofinheritance tax from April 2027.
This implies that more estates will be required to pay the tax, as including their pension along with their home and other assets will cause the overall value of their estate to exceed the limit.
This amounts to £325,000 for an individual, increasing to £500,000 if they are transferring their primary residence to their children or grandchildren.
Read more: What is the process of equity release?
Couples who are married can combine their allowances, allowing them to transfer a combined amount of £1 million if they leave their home to their immediate family members.
Increasing home values are also bringing more individuals within the scope of inheritance tax.
Homeowners can lower the value of their estate—and thus possibly the inheritance tax—by accessing equity from their home prior to passing away.
New data from the Equity Release Council reveals growing interest in this type of loan, with a 10 percent rise in overall equity release lending from April to June 2025 compared to the same period in 2024.
However, it’s vital to seek proper advice*before embarking on this path, as there are also numerous challenges.
If an individual received money obtained by releasing equity to their family and passed away within seven years, it could still be liable for inheritance tax due to the seven-year rule.
> Read This is Money’s complete guide to inheritance tax
Equity release may also impact eligibility for state benefits.
The interest applied to the loans, which is deducted from the home’s value following the borrower’s passing, also results in heirs receiving a smaller inheritance than they would have otherwise.
Sadna Zaman, the home finance proposition development manager at Canada Life, stated: “We are noticing a growing number of individuals using equity release not only for single expenses or major projects such as home renovations or settling an existing mortgage, but also more frequently as a strategy for estate planning.”
Following the Government’s recent announcement that it plans to include unused pension funds in inheritance tax starting April 2027, we expect an increasing number of people to consider equity release as a method to assist family members with gifts, while possibly lowering their future inheritance tax obligations.
Home renovations were the primary reason customers of Canada Life released equity, with 43 percent allocating part of the funds for this purpose in the first half of 2025.
This surpassed the existing mortgage that had been the top choice at 42 percent the previous year, but in the first half of 2025, it was mentioned by 27 percent of respondents.
This was tied with covering daily living expenses, also at 27 percent, a significant rise from 20 percent in the first half of 2024.
Holidays served as a reason for 25 percent of customers, an increase from 21 percent during the same period in 2024, with gifting being the next most common factor at 22 percent.
Debt consolidation was referenced by 21 percent in 2024, but dropped out of the top five this year.
Zaman stated, “The growing number of homeowners who mention everyday expenses and emergency savings as the basis for their application indicates that managing costs during retirement is becoming increasingly difficult.”
