EQUITY RELEASE GUIDE
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Consider your own financial position as well as the gift
Giving money to family can be a significant financial decision. Before borrowing against your home to make a gift, consider how much you can afford to give, the potential cost of the borrowing and whether you may need the money or property equity yourself in the future.
Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits and your tax position.
Can you use equity release to give money to family?
Money released through a lifetime mortgage can potentially be given to children, grandchildren or other family members. The recipient might use the money for a house deposit, education, a significant purchase or another purpose.
The lifetime mortgage remains your borrowing, even if some or all of the money is given away. This means the interest, costs and longer-term implications of the loan remain relevant to your own financial position.
Lifetime mortgage
Borrowing is secured against your home.
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Money released
The amount potentially available will depend on your circumstances and the product.
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Gift to family
You may choose to give some or all of the money released to a family member.
The gift and the borrowing are two separate decisions
Once money is given to a family member, you may no longer have access to it. The lifetime mortgage, however, remains secured against your home and its balance may increase if interest is added rather than paid.
Before deciding how much to give
YOUR NEEDS
Money you may need later
Consider your expected income, expenditure and potential future financial needs.
YOUR HOME
Equity remaining
Consider how the borrowing could affect the amount of equity remaining in your property.
YOUR ESTATE
Inheritance
Giving money now and borrowing against your home can affect what may ultimately remain in your estate.
Using equity release to help with a house deposit
Some homeowners consider releasing money from their property to help a child or grandchild with a deposit for their own home.
The money could potentially form part or all of the recipient’s deposit, but there are two separate financial arrangements to consider: your lifetime mortgage and the recipient’s property purchase and mortgage.
YOUR POSITION
The lifetime mortgage
You arrange borrowing secured against your home and choose to give some of the money released to your family member.
The borrowing, interest and longer-term effect on your property equity remain your responsibility.
THEIR POSITION
The gifted deposit
Your family member may use the money towards their property purchase, subject to the requirements of their mortgage lender, conveyancer and any other parties involved.
Their mortgage application and property purchase are separate from your lifetime mortgage.
What may the recipient need to consider?
Gifted deposit requirements
A mortgage lender may ask for confirmation that the money is a genuine gift rather than a loan that needs to be repaid.
Their mortgage application
The recipient will still need to meet the lender’s own eligibility, affordability and mortgage requirements.
Legal documentation
The recipient’s conveyancer may need information or documentation about the source and nature of the gifted money.
The wider purchase costs
The deposit is only one part of buying a home. The recipient may also need to budget for legal, moving and other purchase-related costs.
A gifted deposit does not guarantee a mortgage
Receiving money towards a deposit does not mean a mortgage application will necessarily be accepted. The recipient will still need to satisfy the lender’s requirements and the property will need to meet any applicable lending criteria.
If you are considering releasing money specifically to help with a property purchase, the timing of the gift may also need to be coordinated with the recipient’s mortgage and conveyancing process.
What else might you give money to family for?
Helping with a property deposit is only one reason someone might consider giving money to family. The money released through a lifetime mortgage could potentially be given for a range of purposes.
Whatever the reason for the gift, consider the effect on your own finances separately from how the recipient intends to use the money.
Buying a home
Providing money towards a deposit or other costs associated with a family member buying a property.
Education
Helping with university, training or other education-related costs.
Supporting children or grandchildren
Providing financial help with a significant expense or other family need.
Home improvements
Helping a family member with repairs, adaptations or improvements to their own home.
Starting or supporting a business
Providing money that a family member intends to use for a business or self-employment.
Other significant expenses
Providing financial help towards another substantial purchase or expense.
The purpose of the gift does not change the cost of the borrowing
If the money is released through a lifetime mortgage, interest and any other applicable costs relate to the borrowing regardless of how the recipient ultimately uses the money.
Think about whether the gift is intended to be permanent
If you give money outright, you may no longer be able to access it if your own circumstances change. Before making a significant gift, consider your potential future income, expenditure and financial needs.
If you expect the money to be repaid, or want to retain rights over it, the arrangement may be different from an outright gift and legal or financial advice may be appropriate.
How could giving money affect your estate and Inheritance Tax?
Giving money to family can reduce the assets you own, but the Inheritance Tax treatment of a gift depends on factors including the type and amount of the gift, when it was made and your circumstances.
Using equity release to provide the money does not mean that the gift is automatically outside your estate for Inheritance Tax purposes.
Many outright gifts are potentially exempt transfers
An outright gift to an individual that is not covered by an exemption will generally be a potentially exempt transfer for Inheritance Tax purposes.
GIFT MADE
Potentially exempt transfer
The gift may remain relevant for Inheritance Tax if you die within seven years of making it.
SEVEN-YEAR PERIOD
Time since the gift matters
The tax treatment can depend on how long you survive after making the gift and on other gifts you have made.
AFTER SEVEN YEARS
Gift generally becomes exempt
If you survive for seven years after making an outright gift to an individual, the gift will generally no longer be taken into account for Inheritance Tax.
The seven-year rule does not mean every gift is taxed for seven years
Some gifts are covered by specific Inheritance Tax exemptions and may be exempt immediately. The treatment of larger gifts can also depend on other gifts made during the relevant period and the value of your estate.
Some gifts may be covered by exemptions
ANNUAL EXEMPTION
£3,000 each tax year
You can currently give away up to £3,000 in total each tax year using the annual exemption. Any unused annual exemption can generally be carried forward for one tax year.
REGULAR GIFTS
Normal expenditure out of income
Some regular gifts can be exempt where they form part of your normal expenditure, are made out of income and leave you with enough income to maintain your usual standard of living.
OTHER EXEMPTIONS
Other gifting allowances
Separate exemptions can apply in circumstances including certain small gifts and gifts made in connection with a marriage or civil partnership.
Borrowing to make a gift is not automatically an Inheritance Tax strategy
BORROWING
Lifetime mortgage
Borrowing secured against your home.
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GIFTING
Money gifted to family
A separate transaction in which you give some or all of the money away.
Taking a lifetime mortgage creates borrowing secured against your home, while giving the money away is a separate transaction. The overall Inheritance Tax position depends on the circumstances and applicable tax rules.
Equity release should not be taken solely on the assumption that borrowing money and giving it away will necessarily reduce an eventual Inheritance Tax liability.
Keep records of significant gifts
Records of what was given, who received it, the value of the gift and when it was made can be important when an estate is later administered.
Inheritance Tax can be complex, particularly where substantial gifts, previous gifts, trusts or other estate-planning arrangements are involved. Appropriate tax or legal advice may be needed.
How could giving money affect your own financial position?
Helping family financially may be important to you, but money given away may no longer be available if your own circumstances change.
When the gift is funded through a lifetime mortgage, it is also important to remember that the borrowing remains secured against your home even after the money has been given to someone else.
Your future income and spending
Consider whether your expected income and other resources are likely to be sufficient for your own ongoing expenditure and financial plans.
Equity remaining in your home
A lifetime mortgage can reduce the amount of property equity available to you later, particularly if interest is added to the loan.
Unexpected future costs
Your financial needs may change over time, including as a result of changes to your home, lifestyle or other personal circumstances.
Access to money you have given away
An outright gift generally means transferring the money to the recipient, so you should not assume that it will be available to you again if you later need it.
What about benefits and future care costs?
MEANS-TESTED BENEFITS
Giving money away can affect entitlement
If you receive, or may later need to claim, means-tested benefits, giving away money can potentially be relevant to how your entitlement is assessed.
The rules depend on the benefit and the circumstances, so the effect should not be assumed in advance.
CARE AND SUPPORT
Future care needs may also be relevant
If you later require care or support, previous gifts can potentially be considered when your finances are assessed.
The treatment will depend on the circumstances and applicable rules at the time.
Giving money away does not necessarily mean it will be ignored in a future financial assessment
Where someone deliberately gives away assets in order to increase entitlement to means-tested support or reduce the amount they are expected to contribute towards care, the relevant authority may consider the circumstances of the disposal.
The rules can be complex and depend on the facts of the individual case.
Balance helping family with retaining financial flexibility
Before making a substantial gift, consider not only what you can afford today but what resources you may want to retain for your own future needs.
What are the costs of using equity release to help family?
If you use a lifetime mortgage to provide money to family, the amount given away is funded by borrowing secured against your home.
The family member may receive the money now, while the cost of the lifetime mortgage can continue over many years. Understanding that longer-term cost is therefore important.
Money released
You borrow money through a lifetime mortgage secured against your home.
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Money given to family
You choose to give some or all of the money released to your family member.
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Borrowing continues
The lifetime mortgage remains in place and interest may be added to the loan if it is not paid.
What can affect the overall cost?
Interest
Interest is charged on the lifetime mortgage. If it is added to the loan rather than paid, interest can also be charged on previously added interest.
How long the mortgage runs
The longer the lifetime mortgage remains outstanding, the more time there may be for interest to accumulate.
How much you borrow
The amount borrowed will affect the amount on which interest and any applicable borrowing costs are based.
Fees and other charges
Advice, legal, valuation or product-related costs may apply depending on the arrangement.
Compare the amount given with the potential longer-term cost
TODAY
The amount your family receives
This is the money you choose to give to your family member.
OVER TIME
The potential cost to you
This includes the lifetime mortgage balance and the effect the borrowing may have on the equity remaining in your home.
A £1 gift does not necessarily have a £1 long-term cost when the money used to make the gift has been borrowed.
The cost of borrowing and the value of the gift are separate considerations
Consider both the benefit you want to provide to your family and the potential cost and financial effect of the lifetime mortgage used to fund it.
What alternatives are there to using equity release to help family?
Equity release is not the only way you might provide financial help to family. Depending on your circumstances, there may be other ways to provide support without taking out a lifetime mortgage.
Some alternatives involve using money you already have, while others may involve providing support gradually or reconsidering how much help you want to provide.
Using savings or investments
You might consider whether existing savings or investments could provide some or all of the money, while considering the effect on your own financial position.
Providing help gradually
Rather than providing a large amount at once, you might consider whether financial help could be provided over time from resources available to you.
Other borrowing options
Depending on your circumstances, other forms of borrowing may be available and could have different repayment requirements, costs and eligibility criteria.
Changing the amount of support
You might reconsider the amount you want to provide or whether there are other ways to help that require less money.
Questions to compare
SOURCE
Where will the money come from?
COST
What could providing the money cost you?
FLEXIBILITY
Could you access the money later if needed?
LONG TERM
How could your future finances be affected?
An alternative does not have to provide the same amount of money
Comparing your options can include reconsidering how much financial help you want to provide, when you provide it and whether you need to provide the full amount at once.
Questions to consider before using equity release to help family
Before using a lifetime mortgage to provide money to family, it can be useful to consider the gift itself, the cost of the borrowing and how your own circumstances might change in the future.
How much do you want to give, and what will the money be used for?
How much might you need to borrow to provide the gift?
What could the lifetime mortgage cost over time?
How much equity might remain in your home after the borrowing?
Could you need the money yourself in the future?
Are there other ways you could provide financial help?
How could the gift affect your estate and wider financial position?
What happens if your circumstances or plans change?
Consider the decision from both sides
Providing money may help your family member achieve something now, while the lifetime mortgage and its potential costs remain part of your own finances. Consider both sides of the arrangement before deciding whether to proceed.
YOUR FAMILY
What does the gift help them achieve?
Consider how much they need, what the money is for and whether their plans depend on receiving the full amount.
YOUR FINANCES
What does providing the money mean for you?
Consider the borrowing, potential interest, equity remaining in your home and the resources you may want to retain for later life.
You may also want to understand how much could potentially be available, the costs of equity release and the alternatives before deciding what to do.
Continue exploring equity release
Frequently asked questions
Can I use equity release to give money to my family?
Can I use equity release to help with a house deposit?
Will a mortgage lender accept money from equity release as a gifted deposit?
Does giving money to family reduce Inheritance Tax?
What is the seven-year rule for gifts?
Can I give £3,000 a year without Inheritance Tax?
What happens to the lifetime mortgage after I give the money away?
Could giving money away affect benefits or future care costs?
Can I get the money back if I need it later?
Are there alternatives to using equity release to help family?
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Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits and your tax position.
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