Can I Use Equity Release to Help My Children?

How people typically use equity release to help family

The most common use is helping adult children onto the property ladder — contributing to a deposit, or in some cases gifting the full purchase price. With property prices at current levels, a parental gift can make the difference between a child accessing home ownership or not.

Other uses include paying off a child's debts or student loans, funding a grandchild's education, supporting a child through a business start-up, or simply providing regular financial support to family members who are struggling. Once the equity release funds are in your account, how you use them is entirely your decision.

The IHT seven-year rule

Outright gifts to individuals are potentially exempt transfers (PETs) for inheritance tax purposes. If you survive seven years after making the gift, it falls completely outside your estate and no IHT is payable on it. If you die within seven years, taper relief reduces the IHT charge on a sliding scale — the shorter the period between gift and death, the higher the potential tax.

For people who are already likely to have an IHT liability, making gifts early and surviving seven years can be an effective way of reducing the eventual tax bill. However, the equity release itself reduces the estate value too — the outstanding loan balance is deducted from estate assets — which may already reduce any IHT exposure. See Does equity release affect inheritance tax?

The compound interest trade-off

The core trade-off when using equity release to help children now is that the loan will compound over time and reduce what they ultimately inherit. Giving a child £50,000 today from equity release may mean they inherit £50,000 less — or significantly more than £50,000 less if the loan runs for many years at compound interest.

Whether that trade-off makes sense depends on the family's priorities. For many people, helping children when they most need it — in their 30s or 40s — is more valuable than a larger inheritance decades later. That is a legitimate and reasonable choice. It is simply important to go in with eyes open about the compound interest effect.

Drawdown as an alternative to a lump sum

If you want to support children over time rather than all at once, a drawdown equity release plan allows you to release smaller amounts as needed. Because interest only accrues on funds actually drawn, this can significantly reduce the total compound interest cost compared to taking a large lump sum upfront. See What is drawdown equity release?