Growing inheritance tax concerns cause a 32% increase in equity release

Millions of pounds in housing wealth have been unlocked by homeowners thus far in 2025

Would it lessen the need to pay inheritance taxes?

New data shows that in the first three months of 2025, homeowners took 32% more money out of their properties than they did the previous year. Experts speculate that this is because homeowners are attempting to evade impending changes to inheritance tax laws.

According to the most recent quarterly market report from the Equity Release Councils (ERC), customers used equity release to access housing equity totaling 665 million in the first quarter of this year.

The equity release has increased for the fourth consecutive quarter, rising from 504 million for the same period last year.

An example of a mortgage is equity release. It allows homeowners over 55 to access a portion of the equity they have accumulated in their homes during the years spent repaying their initial mortgage.

Through a loan from an equity release company, they obtain access to cash as a lump sum or in regular installments without having to relocate. Usually, the loan is paid back when the homeowners pass away or move into a care facility and their property is sold.

According to the ERC, the increase in new customers taking lump sums has been a major driver of the equity release market's growth, rising 14% from a year ago.

Among homeowners who opted for a lump sum product, 47 percent borrowed an average of £127,414. This represents a 23% increase over the same period last year and an 11% increase over the previous quarter.

In a separate guide, we examine factors to help you decide between equity release and downsizing.

Is it possible to avoid inheritance tax through equity releases?

The rise, according to experts, may be a reaction to policies outlined in the Autumn Budget that will start factoring pension wealth into inheritance tax calculations in 2027.

After decades of rising housing prices, it is anticipated that thousands more families will have to pay 40 percent inheritance tax when they inherit after accounting for both property wealth and pension wealth.

According to David Forsdyke, head of later life finance at Knight Frank Finance, "Wealthy homeowners who have adequate incomes but worry about inheritance tax are one of the market segments with the fastest rates of growth.

"They are using equity releases to raise money in order to transfer it to investments that are more IHT tax efficient, possibly through their beneficiaries.

According to Sadna Zaman, proposition development manager at Canada Life Home Finance, which offers equity release, "more homeowners may be considering equity release as a strategic option as a result of evolving financial planning considerations, such as impending changes to inheritance tax," she says.

How homeowners can invest in their lifestyle by using equity release to unlock housing wealth.

Equity releases may be more appealing to some homeowners in order to address growing expenses and the challenge of extending pensions over decades as life expectancy rises.

"It's evident that many homeowners are actively investigating property wealth as a useful tool to achieve financial stability and aspirations in later life, as more people live longer and traditional retirement income sources are under pressure," remarks Zaman.

Equity release may also be used to pay off outstanding housing debt in the case of maturing interest-only mortgages.

"Four consecutive quarters of growth and a notable rise in average loan sizes suggest homeowners are increasingly turning to equity release to navigate financial challenges, repay mortgages, or fund lifestyle changes," reads Richard Pike, chief sales and marketing officer at financial software company Phoebus.

"Relying on property wealth is no longer a last resort; rather, it is becoming a strategic decision, as many older homeowners continue to contend with high living expenses and interest-only mortgage maturities.

Advantages and disadvantages of equity releases.

Homeowners over 55 who wish to access a tax-free cash amount from their home's equity without having to relocate can do so through equity release. However, there are other possible risks associated with it, such as the potential for debt accumulation and the reduction in the amount of housing wealth that can be bequeathed to surviving family members.

If you are considering an equity release, it is crucial to consult a financial advisor who is regulated by the FCA.

Pros of equity release:

Affordability assessments are generally less burdensome than standard mortgages; ringfence a portion of your home's value for your beneficiaries so they can inherit it; allow homeowners to access their property wealth without having to sell their home; and reduce the value of your estate for IHT purposes. drawbacks of the equity release.

Equity release is a type of loan where interest is paid on the debt, which can accumulate over time and leave less for your loved ones to inherit. The maximum percentage of equity you can release usually ranges from 20 to 60 percent of the value of your home; you may receive less than market value for the portion of equity you release. The lump sum you receive from equity release may impact your eligibility for certain means-tested benefits. Once you have chosen equity release, it may be difficult to move or remortgage. If you repay the equity release loan earlier than anticipated, penalties may apply.