Older homeowners are being warned against raiding their property wealth to avoid IHT (Image: Getty)
Experts are concerned about the rise in the number of older homeowners reportedly borrowing on the equity in their homes to avoid changes to , which will come into force next year.
Inheritance tax (IHT) thresholds were frozen in October when also announced changes to pensions, which would mean they would become taxable for inheritance tax purposes. Financial advisers are now concerned with a rise in the number of over-55s using a form of borrowing which allows them to use their property as collateral in order to borrow large amounts of cash.
The loans – known as equity release – are similar to a but the interest can add up to thousands of pounds.
Nick Flynn, of pension company Canada Life, told the Telegraph advisers were telling him of savers who were considering borrowing on their property to reduce the value of their estates so they didn’t pay the death tax.
Simon Chalk, of equity release adviser Laterlivingnow, said: “Since the Labour government took power, this has become a much hotter topic for our clients, with the driver being to make significant lifetime gifts to family – often for buying or extending their own home.”
According to UK Finance, the number of homeowners taking out equity release rose nearly 7% last year, with 5,700 homeowners unlocked £510m from their properties in 2024.
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Equity release can be a useful tool, claimed Ian Dyall, of wealth manager Evelyn Partners, but it had to timed properly.
To work the money must be gifted seven years exactly before the ‘gifter’ dies. Interest on equity release, which can be around 6 to 7% is rolled up and only paid back when the person dies, this is why some types of equity release are known as lifetime mortgages.
Dyall said someone who lives much longer than the seven year period they end up paying even more interest and any saving they may have made on inheritance tax will be wiped out.
“In effect, you end up with a window of time that you need to die within to make the strategy work.”