Answers · UK 2025/26
How is equity release treated for tax purposes in the UK?
Cash received from equity release (lifetime mortgage or home reversion) is not taxable income. However, it can affect means-tested benefits, and interest that rolls up on a lifetime mortgage is not tax-deductible. IHT implications depend on how the funds are used.
Full answer
Equity release allows homeowners aged 55 and over to unlock value from their home, either through a lifetime mortgage (borrowing against the property, with interest rolling up) or a home reversion plan (selling a share of the property). Income tax: - The lump sum or drawdown payments from equity release are loans (or proceeds of a part-sale), not income. They are therefore not subject to income tax. - If you invest the equity release proceeds and earn interest, dividends, or rental income, those returns are taxable in the normal way. - Interest on a lifetime mortgage rolls up and is not tax-deductible -- there is no relief for the interest cost. Means-tested benefits: - Cash held in a bank account from equity release counts as capital for means-tested benefit assessments (Universal Credit, Pension Credit, Housing Benefit). - Capital above £10,000 reduces Pension Credit and Housing Benefit on a tariff income basis (£1 per week for every £500 above £10,000). Capital above £16,000 generally disqualifies you from means-tested benefits entirely. - If you spend the equity release proceeds promptly on home adaptations, care costs, or gifts, the capital impact is reduced, but deprivation of capital rules may apply if HMRC or DWP considers the spending deliberate to preserve benefit entitlement. Inheritance Tax: - Taking equity release reduces the value of your estate, which can reduce IHT liability. - If you gift the proceeds to children, the gift starts a 7-year taper clock for IHT purposes. Gifts above the annual exemption (£3,000/yr) may be PETs (Potentially Exempt Transfers). - Home reversion plans technically reduce the estate immediately, which can be efficient for IHT but means losing future house price appreciation on the sold share. Always seek independent financial and legal advice before proceeding with equity release, as it is a complex and irrevocable decision.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.