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Equity release and tax guide

  • Explore the equity release tax considerations before going ahead
  • Get the information you need to make an informed decision
  • We'll explain the benefits and drawbacks of equity release

What is equity release?

Equity release is a way for homeowners to release some of the tax-free funds from the value of their home. Equity release is available to UK homeowners aged 55 or over with a property worth at least £70,000.


When it comes to equity release, we all have questions.

What, for instance, is it exactly?
Equity release is a way for homeowners over 55, whose property is worth at least £70,000, to release tax-free cash from their homes. It is an increasingly popular way for people in, or approaching, retirement to boost their finances.

And will we still own our home?
Yes – and with Key’s plans you can stay in it for as long as you like.

Will we have to make monthly repayments?
No, not unless you want to. The loan, plus rolled-up interest, will be paid back when your plan comes to an end.

Could our family inherit the debt?
No – all of Key's plans come with a ‘no negative equity’ guarantee, so you’ll never owe more than your home is worth and there’ll never be a debt for your family to take on.

How much can we release?
This depends on your age, how much your house is worth and your general health. On average, Key customers have had access to £90,000.

What do people usually use the money for?
Key customers spend the tax-free cash on many different things, such as repaying existing debts, travel and home improvements.

So, what’s different about Key?
Because Key takes a personal and honest approach to equity release, it's good to know we can answer all your questions in a way that's right for you. By ordering our free expert guide, using our free online calculator, or by calling us.

Key - equity release that’s right for you.
In the UK, there are two types of equity release to choose from:

Home reversion

  • With this option, you sell all or part of your home to a reversion company for less than market value. In return, you get a cash lump sum, with no interest to pay on the money released, and no monthly payments to make. When the plan ends, the home reversion provider takes its share of the sale proceeds. You need to be 65 or over to qualify.

Lifetime mortgage

  • All our equity release advice relates to Key lifetime mortgages only - a loan secured against your home. It lets you access some of the tax-free funds tied up in the value of your home while retaining full ownership. You need to be 55 or over to qualify and our fixed advice fee of £1,299 is only payable on completion.

You'll always own your home
You could access the funds you need now and keep full ownership of your home.

Choose how you get your funds
You can release funds from your home in a lump sum or a series of smaller amounts following an initial release.

No monthly repayments
There are usually no monthly repayments to make. this is because the loan, plus compound interest, is typically repaid through the sale of the property. This is usually when the last remaining applicant passes away or moves into long-term care. 

 This is a lifetime commitment - check the benefits and drawbacks before going ahead

We're here to help you find the right later life lending option for you. Request a callback from one of our experts today or call 0808 252 9170.

Benefits and drawbacks of a lifetime mortgage

We understand it’s important you have all the information you need about equity release to make an informed decision in your own time. But rest assured, if equity release isn’t right for you, we’ll tell you.

Lifetime mortgage benefits

Your specialist equity release adviser will explain:

  • You can unlock cash from your home, tax-free, to help meet your needs in later life.
  • You’ll always retain full ownership of your home and can stay in it for as long as you wish with a Key lifetime mortgage.
  • You can choose to make reduced or no monthly repayments to suit your circumstances.
  • You’ll never owe more than your home’s worth with a Key lifetime mortgage.
  • You may be able to remortgage your plan in the future to release further funds or secure a better interest rate, although this isn’t guaranteed and may be subject to early repayment charges.

Lifetime mortgage drawbacks

Your equity release adviser will also outline the following:

  • A lifetime mortgage is a loan secured against your home and subject to compound interest, meaning the amount you owe can grow quickly.
  • Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits.
  • Equity release may leave you with limited or no property equity remaining.
  • Equity release will reduce your financial options in the future.
  • A lifetime mortgage is a long-term financial product and is not designed to be fully repaid until the death or entry into long-term care of the last remaining borrower, otherwise early repayment charges may apply.

Do I have to pay tax on equity release funds?

You don't need to pay tax on the funds you unlock from your home's value through equity release.

Why is equity release not taxable?

The money you receive through equity release is not taxable. Here's a look at two of the main types of tax:

There's no Income Tax on equity release funds as they are not classed as income. This applies even if you plan to use the funds to top up your income in later life.

If you were to invest or spend these funds and generate income from them, that additional income may be subject to Income Tax. However, we would not permit the use of equity release for investment purposes.

Capital Gains Tax is a tax levied on the profit earned when you sell an asset that has appreciated (gone up in value). There is no Capital Gains Tax on equity release funds.

If after taking out equity release you decide to sell your home and it has gone up in value, you may think that you could be taxed on this gain. But there's a significant exemption to consider. In the UK, your primary residence is usually exempt from Capital Gains Tax thanks to the Private Residence Relief.

Does equity release affect Inheritance Tax?

There are ways in which equity release can have implications for Inheritance Tax, which is important if you want to leave an inheritance to your loved ones. If advised by a qualified tax specialist, you may be able to use equity release to reduce Inheritance Tax.

This is because releasing money from your estate reduces its value, potentially reducing any Inheritance Tax that could apply to it.

ⓘ Did you know...

The standard tax-free allowance for inheritance tax in the UK is £325,000. However, if your estate is left to your children, stepchildren or grandchildren, an additional allowance known as the Residence Nil Rate Band increases this threshold to £500,000. If the value of your estate exceeds your allowance, the excess will typically be taxed at a rate of 40%.

Supporting loved ones is a common use for equity release. Gifting allows you to see your loved ones enjoy the money while you are still with them. These gifts can still be subject to Inheritance Tax, but on a sliding scale that is never above the standard 40% rate.

In the UK, gifts made during your lifetime may be subject to Inheritance Tax if you pass away within seven years of making the gift. The tax rate payable declines over time, falling to 32% after three years from making the gift for example, and down to zero after seven or more years.

Am I eligible for equity release?

If you're thinking about releasing equity from your home, check if you're eligible. You can check this by using our free online calculator.

To take out an equity release plan with Key, you must be a UK homeowner:

  • Aged 55+ (including all joint applicants)
  • With a property worth £70,000+
ⓘ Did you know...

If you're not eligible now, why not try our later life mortgage finder? It may be that we can still help you take control of your finances in later life.

Back to "What's in this guide?"

How do I find out more about equity release?

If you are thinking about taking out equity release and want to know more about accessing these tax-free funds, it’s important to get advice from a qualified expert. Here's how the process typically works when you come to us:
  1. A member of our team will get in touch for an initial chat at a time that suits you. And if you wish to, make an appointment to see one of our advisers
  2. An adviser will take the time to understand more about you, your situation and your needs
  3. They will have a detailed discussion with you about all the options available to you
  4. If they do not think a lifetime mortgage is right for you, they will tell you
  5. If it is a suitable option, they will take you through the equity release process

Use our free calculator

Check your eligibility and how much cash you could release tax-free from your home. Try our equity release calculator.

Speak to an adviser

Book an appointment with a qualified equity release adviser at a time that's good for you. Find out what to expect from your equity release advice appointment.

Assess your options

If you want to learn more, your adviser will explain the ins and outs of equity release and discuss your options. If you decide to go ahead with equity release your adviser will provide a personalised illustration.

Your other options

Here are some alternatives that may be more suitable for you:

Equity release costs

Here are some guides to help you understand equity release costs:

ⓘ If another product is more suitable, we'll refer you to a different adviser within Key Group who can help. If you go ahead, you'll only be charged the same £1,299 advice fee you'd pay with us, even if their fee is usually higher.

Back to "What's in this guide?"

Why choose Key as your equity release adviser?

We take the time to understand your needs before offering you tailored advice and a recommended plan. We know that planning your finances for later life can be a long and detailed process, and are here to give you the information you need.

We're regulated experts

Key is regulated and a proud member of the Equity Release Council.

Trusted award-winners

We've won 80+ awards. 17,000+ excellent Trustpilot reviews makes us the UK's most trusted equity-release specialist.

Highly experienced

We have over 25 years' experience. We've helped more than a million customers with tailored equity release advice. Once we've taken the time to understand your needs, we’ll have a sound idea of what the right plan is for you.

Speak to one of our advisers about equity release

It's important to carefully consider whether equity release is right for you. Get in touch with Key today and our advisers will offer advice about equity release and take the stress out of making financial plans for later life.

Speak to an adviser

Call us on 0808 252 9170

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Page last updated: Wednesday 26 June 2024