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Home equity release

Home equity release describes the products that allow you to withdraw money (equity) that’s tied up in your home. You usually need to be over 55 to claim, but it’s a useful method of using your home as a collateral whilst also living in it. 

You can claim the money as a lump sum or in instalments – but be aware that you will have to repay. And interest is added. 

How does home equity release work?

There are two kinds of equity release plans:

  1. The “lifetime mortgage”: you take out a mortgage on your home, while still owning it and living there. The loan and any interest are paid back when you pass away, or when you move into long-term care.
  2. The “home reversion”: you sell a part of your home in return for a lump sum or regular payments. You can continue living there, rent-free, until you pass away. At the end of the plan, your home is sold, and the money is shared between the home reversion provider and any other beneficiaries.

How does equity release work with tax?

Thankfully, you don’t have to pay any tax on money you get from your equity release. That said, you should be aware that releasing equity from your house will reduce the value of your estate. 

This can reduce your family’s liability for Inheritance Tax (IHT), but it can also mean that there is less of your estate to go to your family. 

More key considerations

Before you go for equity release, bear in mind:

  • A lifetime mortgage is often more expensive than your regular mortgage
  • The amount that can be released is usually up to 60% of the value of your home – and what you can take out varies depending on your age
  • The ‘no negative equity guarantee’ means that even if you don’t have enough in your estate to cover the loan, once your property is sold and all fees paid, neither you nor your estate is liable to make up costs

For more information and advice, take a look at this AgeUK factsheet.

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