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This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.
With inheritance tax (IHT) bills rising and more families struggling with the cost of living, an increasing number of homeowners are looking for ways to make their money work harder in later life.
For some, that means turning to equity release – a tool that can unlock cash from a property without having to move, downsize or sell up. It can be a way to support children or grandchildren during your lifetime.
But is it worth it? Here’s what you need to know.
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Equity release has traditionally been used to help older homeowners who are “asset-rich, but income-poor”. It allows homeowners aged 55 or over to unlock some of the value tied up in their property, without having to sell or move out.
The most common type is a lifetime mortgage, where you borrow against your home and the loan plus interest is repaid when the property is eventually sold, usually after you die or move into longterm care.
Whilst traditionally, equity release has been used as a way to top up retirement income, it’s increasingly being used as part of estate planning. According to research from TWM Solicitors, borrowers aged over 70 years old released £3.5 billion from their homes in the year to August 2025 – an increase of 11% on the previous year.
The law firm said the increase was partly due to families wanting to support younger generations and avoid paying IHT.
Bernard Rust, chartered financial planner at Shackleton Advisers, says: “Since the changes to the inheritance tax (IHT) regime announced by the chancellor in the 2024 Budget [including IHT on pensions from April 2027], there has certainly been an increase in interest in using equity release as a way of helping to manage potential IHT liabilities.
“As an adviser, it is certainly something that is coming up more frequently in conversation than it did previously.” In some cases, equity release can achieve two goals: cutting a tax bill and providing support to younger family members.
Duncan Mitchell-Innes, partner and deputy head of private client at TWM Solicitors, adds: “With living costs rising and IHT bills increasing, more pensioners are turning to equity release to unlock capital tied up in their homes.”
“At the same time, younger generations are finding it harder to buy a property or even cover day-to-day expenses. We’re seeing families increasingly rely on older relatives for financial support. For some, equity release offers a way to provide that support without having to sell or downsize.”
Inheritance tax planning is more complicated for people who have a lot of wealth tied up in their home. A lifetime mortgage can be a way to unlock equity that has built up in the property, with no requirement to repay the money until the property is eventually sold.
"This then provides homeowners with the opportunity to get money out of their estate and reduce the amount of IHT that will eventually be payable when they die. Rust says: “Provided that the money released is used or spent in some way, it has the potential to be a useful tool to help reduce IHT liabilities.
"This may include gifting to children or others – providing the donor lives for the required seven years after making the gift – or simply spending the money on things like cruises, holidays, or medical requirements.”
When you start thinking of ways to reduce your IHT bill, equity release shouldn’t be your first port of call. That’s because taking money out of your property comes at a cost. In the case of lifetime mortgages – the most common form of equity release – interest usually rolls up over the course of the loan.
So long as your provider is a member of the Equity Release Council, you’ll have a no negative equity guarantee. This means that you will never owe more than the value of your home. Nonetheless, costs can rack up quickly and you (or your estate) could still end up repaying more than double the amount you borrowed.
Lucie Spencer, financial planning partner at Evelyn Partners, says: “When an individual opts to have the interest compounded, it rolls up each year and can become substantial, especially for those who take out equity release early in retirement. “For example, if you borrow £100,000 at an interest rate of 5% and live for another 20 years, the amount that needs to be repaid rises to around £265,330.
This is significantly more than the amount originally borrowed.” You can instead choose to pay the interest as you go, so only the capital is repaid from the estate. Spencer adds: “This offers greater certainty over the eventual repayment amount but it does mean committing to an additional monthly repayment – something not everyone will be comfortable with or able to sustain.”
So equity release is usually only recommended if there are no other more ‘liquid’ assets to give away (like money in savings or investment accounts). Rust adds: “Many cases involve very elderly people who might have started to use up their other assets, with their property being one of their last assets, meaning there's very little else they can do to try to reduce their IHT liability.”
You will also need to give careful thought to what you do with the money. Many retirees want to help younger family members, which can be an effective way of getting money out of your estate, providing you live for seven years (or gifts fall within the permitted gifting allowances).
You can also spend money on yourself, but Rust warns it’s important you don’t end up inadvertently boosting the value of your estate. “It’s probably unwise to go out and buy jewellery or a work of art, as such assets will form part of your estate when you eventually pass away.”
You also need to think very carefully about home improvements. “Equity release is likely to be fine if you need a new roof, a new heating system, and so on, as those sorts of things don’t necessarily increase the value of the property, but buying a conservatory, or adding an extension – even a swimming pool or a basement conversion – would be unlikely to reduce any eventual IHT liability.”
Before you give away any wealth, it’s important to ensure you don’t give away more than you can afford. This means giving serious thought to the prospect of paying for care towards the end of your retirement.
The average cost of residential care in the UK now stands at £67,496 a year, rising to £79,820 if nursing care is required, according to Carehome.co.uk. This varies widely depending on the care home and where you are in the UK.
Spencer says: “If you have already released funds from your home, this may leave you with fewer assets to cover this cost, in turn limiting the type of care home you can access.”
If most of your wealth is tied up in your home, there may be ways to access it and give some of it away, without taking out an equity release plan. “Downsizing to a smaller or lower-value property can be one of the most straightforward ways to release capital from your home,”
Spencer explains. “There are no interest or debt repayments, and the proceeds released can be used to boost retirement income or make lifetime gifts. “Provided you live for seven years after gifting, the gift sits outside of your estate for inheritance tax purposes. You do, however, need to factor in stamp duty [or land transaction taxes in Scotland and Wales] and moving costs.”
Another option is to consider a lodger. This could provide you with a new source of income that you could give away tax-free using gifts from surplus income rules. It won’t work for everyone,but it could be an effective way of getting cash out of your estate, if you’re open to the idea.
If you’ve got any concerns about IHT, it’s important to get professional advice. They will help you accurately work out the size of your estate and how much tax might be payable when you die.
They will also be able to recommend the best way to reduce your bill – whether that involves equity release or a different strategy altogether. It’s also a legal requirement to take specialist professional advice if you’re considering equity release.
Saga Legal has partnered with Co-op Legal Services, who provide regulated legal services, helping to ensure you have the right level of support and protection for yourself and your family.
They can give advice on topics including how a will could reduce the impact of any potential inheritance tax, and why a trust will might better protect your home and savings. You can book a free legal review to get the guidance you need.
After your free review, if you choose a product or service, they’ll explain any fees and costs to you clearly. You can only use the free legal review service if you live in England and Wales. If you’re in Scotland or Northern Ireland, you can get estate planning help from Co-op Legal Services’ trusted partners.
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