Using Equity Release to Help Your Children or Grandchildren
The bank of mum and dad is now one of the largest sources of housing deposit funding in the UK. Many parents and grandparents who want to help younger family members onto the property ladder find themselves in the same position: significant property wealth, limited liquid savings. Equity release is one way to bridge that gap — releasing tax-free cash that can be gifted immediately rather than left in an estate.
Why people choose this
The housing affordability gap between generations has widened significantly. A first-time buyer in most of the UK needs a deposit of £30,000–£80,000 or more. Many cannot accumulate this through saving alone at any realistic pace, particularly in regions where property prices have outrun income growth for two decades.
Parents and grandparents who own property worth £300,000 or more often have the wealth to help — but it is tied up in bricks. The choice is between waiting until the estate is distributed (which may be many years away, and comes at the cost of watching the opportunity pass) or releasing some of it now. Many find that the ability to see the benefit — to watch a child buy their first home, to attend the housewarming — matters as much as the financial calculation.
Equity release makes this possible for homeowners who would not otherwise have the liquid savings. The released funds are tax-free, there are no lender restrictions on gifting them, and the gift is between the homeowner and the recipient — it does not appear in the equity release documentation.
How it works
The equity release process is the same as for any other purpose:
- A lifetime mortgage is arranged, secured against your property
- The funds are received tax-free into your bank account at completion
- You gift the money to your child or grandchild
- They use it as a deposit (or for any other purpose you choose to gift it for)
The lender does not restrict what the money is used for once it has been advanced. The gift is a private matter between you and the recipient.
There is no requirement to inform the mortgage lender for your child’s purchase that the deposit came from equity release — though the child’s conveyancer and mortgage lender will ask about the source of the deposit funds as part of their standard anti-money laundering checks. A gifted deposit from equity release is entirely legitimate and straightforward to evidence.
Worked example
Situation: Patricia, 68, owns her home outright (worth £480,000). Her daughter is buying a house and needs a £85,000 deposit. Patricia has limited liquid savings. At 68, she can typically release approximately 33% of her property value.
Available: 33% × £480,000 = £158,400 maximum. She releases £90,000 — well within what is available.
The gift: £85,000 to her daughter for the deposit. £5,000 retained as a personal contingency fund.
The loan over time: At 6%, £90,000 will grow to approximately £215,000 in 15 years without repayments. Her property, if it grows at a modest 2% per year, will be worth around £646,000 at the same point. The estate passes on approximately £431,000 net of the loan — significantly less than without equity release, but she has seen her daughter buy a home she could not otherwise afford.
This example is illustrative only. Actual LTV ratios, interest rates, property growth rates, and individual circumstances vary. These figures should not be relied upon as a guide to your own situation.
The inheritance tax considerations
Gifts from equity release proceeds are subject to the same inheritance tax rules as any other gift from your own funds. This is an important area to understand before proceeding.
The seven-year rule: If you make a gift and die within seven years, the gift may be included in your estate for IHT calculation. If you survive seven years from the date of the gift, it falls outside your estate entirely. This clock starts from the date of the gift, not from the date of the equity release.
Taper relief: If you die between three and seven years after making the gift, taper relief reduces the IHT owed on that gift on a sliding scale: 20% of the full IHT rate in year three, reducing to nil by year seven.
Annual exemption: You can give away up to £3,000 per tax year free of IHT without it ever counting towards the seven-year rule. Gifts above this amount are what potentially fall within the seven-year calculation.
The IHT interaction with equity release itself: The loan reduces the value of your estate — which may reduce or eliminate an IHT liability. On a £480,000 estate, a £90,000 loan reduces the net estate to £390,000. Combined with the nil-rate band (£325,000) and the residence nil-rate band (up to £175,000 for property passing to direct descendants), a £90,000 equity release loan can materially change the IHT picture.
These interactions are specific to individual circumstances. An estate planning specialist or solicitor should be consulted if IHT is a significant consideration. See: Does equity release affect inheritance tax?
Use our IHT impact calculator to see how releasing equity could affect your estate’s inheritance tax position.
What to discuss as a family
Equity release to help one child raises questions that are worth discussing openly before proceeding.
If there are other children: Will the gift be equal across siblings? Will it be treated as an advance on inheritance — meaning the recipient inherits proportionally less when the estate is eventually distributed? Families handle this differently, but an explicit conversation before the gift is made avoids disputes later. There is no right or wrong answer, but there is a right and wrong time to have the conversation — before is better than after.
The inheritance impact: The loan reduces what will eventually be in the estate. Beneficiaries should understand this — not as a reason not to proceed, but so it is not a surprise when the estate is eventually administered. See our guide to talking to your family about equity release.
The seven-year consideration: If IHT is a relevant factor, both the timing and the amount of the gift may be worth structuring carefully. Spreading the help over several tax years (using the annual exemption) may be a more IHT-efficient approach for smaller, ongoing support.
Giving to grandchildren
Everything above applies equally to gifts to grandchildren. The seven-year rule, the IHT interaction, and the equity release mechanics are unchanged. Grandparents helping grandchildren with deposits is increasingly common as affordability pressures extend across generations — the first-time buyer problem is no longer confined to millennials.
For grandparents in their late seventies or older, the seven-year IHT rule is worth taking particularly seriously: the probability of surviving seven years is lower, and the IHT implications of a large gift within that window may be significant. An estate planning adviser can model the likely outcomes given age and health.
Voluntary repayments to manage the loan
Many lifetime mortgages now allow voluntary repayments — typically up to 10% of the outstanding balance per year — without early repayment charges. If a child who has received the gift later wishes to help reduce the equity release loan (effectively returning part of the gift to preserve the estate), this is possible with most modern plans.
This is not a requirement and carries no obligation, but it is worth knowing the option exists. Some families find it a useful way to manage the long-term compound interest effect collaboratively.
Related guides
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Ask a QuestionReviewed by Chris, CII-qualified equity release specialist · Last reviewed July 2026