Everything You Need to Know About Equity Release and Taxes

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If you’re thinking of getting equity release, it’s a good idea to do extensive research first. It is important that you know what’s going on before you apply for equity release. What exactly do you need to know? For example, what does equity release mean, what are possible options and which form suits me best. Read on and find out everything you need to know about equity release.

What Does Equity Release Mean?

Equity release is a way for homeowners or owners of other properties to provide funds from the value of the property while they are still living in It or using it. The money that is released can be obtained at once, but there are also options to withdraw smaller portions over a longer period of time or a combination of the two above. Whether you are eligible for equity release depends on the following factors: age, income, how much you want to get and future plans.

Equity release options allow you to get a downpayment or a regular income. The “catch” is that the money you receive must be repaid when you die or enter long-term care. You will owe the money borrowed as well as the loan interest accrued with a Lifetime Mortgage.

Which Equity Release Options Are Available?

There are 2 kind of equity release options. The first one is lifetime mortgage. Lifetime mortgage is the most popular option of the two. With this option you take out a mortgage on a property, which is also your main residence, while retaining ownership. You can choose to set aside part of the value of your property as an inheritance for loved ones you leave behind after death. It’s up to you if you want to make repayments or let the interest build up. When you die or move to a long-term care facility, you must repay the amount borrowed and any accrued interest.

When the final borrower passes away or enters long-term care, the house is sold and the proceeds are used to repay the loan. Anything left over will be distributed to your beneficiaries. Your property may be able to pay off the mortgage without having to sell the home.

Home Reversion

A home reversion plan is a type of equity release that allows you to access some of the money you’ve accumulated in your home, sometimes referred to as house equity. You sell all or portion of your home to a supplier (for example, 50% of its worth). In exchange, you’ll get a tax-free lump sum, recurring installments, or both.

You can stay in the property until you die or move to a long-term care facility, but you have to maintain and insure the house and no, you don’t pay rent or anything. With this option you can also set aside part of the borrowed amount as e.g. inheritance. The percentage you keep will always remain the same, regardless of any change in the value of the house or property, unless you decide to take further equity releases. At the end of your property will be sold and the proceeds will be divided according to ownership. 


Equity release is non – taxable. Although the money you receive is tax-free, what you do with it may be subject to taxation. For example, if you don’t use your money right away and instead put it into a savings account, you may be subject for taxes. With equity release becoming more popular, it’s crucial to understand the tax consequences of these plans and what to look out for if you’re considering it as a way to meet your financial objectives.

Although the money you withdraw via equity release is tax-free, what you do with it may be taxed. For example, if you don’t spend the money right away and instead save it in a variety of savings accounts, it could be taxed. Furthermore, because the money you release is tax-free, equity release may have a “tax positive” effect by lowering your IHT cost.

For some people, it may make sense to spend their tax-free equity release money first to fund their retirement goals, then start lowering their pension pot once that money is spent. Another advantage of this strategy is that your pension fund will have more opportunities to grow because it will be invested for a longer period of time. Equity release can be disadvantageous if interest and other circumstances are not favourable. So, make sure you do extensive research on which option is best for you or contact an independent financial advisor.