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How Does Equity Release Affect Inheritance Tax?

Equity release reduces the value of your estate by the outstanding loan amount — which can reduce or eliminate an inheritance tax (IHT) liability. This calculator shows the difference an equity release plan could make to your IHT bill.

Figures are illustrative only. IHT calculations depend on many factors not captured here, including gifts, trusts, business assets, and the 7-year gifting rule. Always seek specialist advice.

£550,000
Include the value of your home plus any savings, investments, and other assets.
None
These reduce your estate value before IHT is calculated.
£80,000
This is the amount you are thinking of releasing. The outstanding loan reduces your estate.
This may unlock the residence nil-rate band (an additional £175,000 per person).
Married couples can combine their IHT allowances.
Your combined IHT-free threshold: £500,000 (£325,000 nil-rate band + £175,000 residence nil-rate band)
Without equity release
Est. IHT: —
With equity release
Est. IHT: —
Debts / mortgage
ER loan
Tax-free
Taxable
IHT without equity release
—
IHT with equity release
—
Potential IHT saving
—

If you gift the equity release funds to family: Gifts given more than 7 years before death fall outside the estate entirely. Gifts given within 7 years may be included. This is separate from the estate value calculation above and can significantly affect the IHT picture. See our guide to equity release and inheritance.

This calculator is for illustrative purposes only. It does not constitute financial advice.

Not sure how much you could release? Use our release estimator →

How the IHT thresholds work in 2026

Nil-rate band: Every person has a £325,000 inheritance tax-free allowance. Married couples and civil partners can combine unused allowances, giving a potential combined threshold of £650,000.

Residence nil-rate band: An additional £175,000 per person (£350,000 for couples) applies when a main residence passes to direct descendants (children or grandchildren). This means a married couple leaving their home to children could have a combined threshold of up to £1,000,000.

How equity release helps: The outstanding loan on a lifetime mortgage is a liability that reduces the value of the estate before IHT is calculated. If the estate is close to the threshold, releasing equity can bring it below the threshold — or reduce the taxable amount significantly.

Pensions and IHT from 2027

From April 2027, unused pension funds will form part of the taxable estate for IHT purposes. This change affects many people who currently have significant pension pots. It is not included in this calculator — but it means the IHT picture for many estates will change materially. See our news coverage of inheritance tax for further context.

What this calculator does not include

This calculator gives a simplified illustration. It does not account for: gifts made in the last 7 years, business property relief, agricultural property relief, trusts, pension assets (see note above), or taper relief on gifts. The true IHT position of any estate requires professional advice.

Related guides

Reviewed by Chris, CII-qualified equity release specialist · Last reviewed July 2026

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