Impact of Equity Release in 2025: What to Consider
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Key Takeaways...
- Equity release allows you to retain ownership of your home while converting a portion of its value into cash.
- The financial impact can include accrued interest, potential reduction in inheritance, and changes to your tax situation.
- It can reduce the size of your estate, thereby potentially decreasing the inheritance you are able to pass on to your beneficiaries.
- Your pension or benefits are not generally affected, but it is wise to check individual circumstances as exceptions may apply.
- Schemes typically allow you to move or sell your home, although certain conditions may apply depending on the type and provider of the scheme.
The decision to release equity from your property should not be taken lightly and all potential impacts of equity release should be considered.
It may have a significant impact on you and your family, so it is essential to understand what it entails.
In This Article, You Will Discover:
At SovereignBoss, we are committed to bringing you the most relevant and up-to-date news on the equity release market. This article will reveal some of the key impacts of releasing equity on your family and inheritance.
Therefore...
The Positive Effect of Equity Release on Your Family
Are you over the age of 55, and do you own property in the UK?
If so, equity release could be a consideration.
It can give you the means to achieve your financial goals for your retirement, such as top-of-the-range healthcare assistance.
While equity release is a viable option to consider for your retirement, it is essential not to overlook the impact it can have on your children.
How Will Equity Release Impact My Family?
Is equity release ever a good idea when it comes to inheritance?
Equity release will impact you and your family in many ways.
For example, suppose someone is using equity release to pay off their mortgage or other debt obligations.
In that case, they may be neglecting other family needs, such as saving for retirement or providing an inheritance.
One of the main pitfalls of equity release is that you may drastically reduce your family's inheritance.
You are essentially using some, if not most, of the money that you may have left to them.
When you pass away or move into long-term care, your home is sold, and the cash is used to pay off the loan plus interest.
Your family will then get whatever balance is remaining.
If your are considering equity release, make sure that measures are taken to help protect your family from any adverse consequences.
How Much Inheritance Will My Family Receive?
If the sale value of your home is lower or equal to the amount owed on your equity release loan, then your family will receive nothing unless you have additional assets.
The great news is that the Equity Release Council1 has ensured a 'no negative equity guarantee' be implemented on all plans.
This means that your family will never owe anything more than the amount your house sells for, even if property prices plummet.
Great news!
Equity release products also allow you to set aside a percentage of your house that will be protected and given to your family when you pass away or move into permanent care.
Will My Family Inherit Debt?
Many people wonder if they will inherit the debt of their family member who has taken out an equity release plan.
The answer is no!
Your equity release loan is repaid from the sale of your home.
What Happens to My Partner if I Pass Away?
If a spouse is the only named beneficiary2 in an equity release plan, their inheriting of the funds will depend on how much of it has already been spent.
Suppose there is money left over after paying for funeral expenses and other debts, then yes.
In that case, your partner may inherit funds; but if it is all gone, then no, they will not be able to claim anything from this scheme.
Some annuity3 providers offer family protection policies to help protect spouses who should have received payments from such plans.
This protection policy includes covering some funeral costs and, in some instances, providing a lump sum.
These products offer peace of mind about what may happen when one passes away.
In addition, you can take out a joint equity release plan, ensuring that your spouse can stay in your house until they, too, pass away or move into permanent care.
What Happens to My Children if I Pass Away?
The answer to this question will depend on the age of your children.
If they are under eighteen years of age, then their parents' estate will be distributed following intestacy law4 that is, according to who the deceased was married to and what share they had in the property.
However, if they are over eighteen (or have reached a certain level of maturity), in that case, it could affect things more significantly as they can inherit even if you have not left them anything else directly in your will.
There may also be other legal considerations that family lawyers would recommend you consider before taking out an equity release plan.
An example of such is whether someone has applied for child maintenance from one of the parents, so please make sure you seek advice where necessary.
Can My Family Inherit Equity Release Funds?
No, technically speaking, your family cannot inherit equity release funds.
This is because your equity release plan comes to an end upon your passing or your move to a care facility.
The money raised from the sale of your home is then used to repay your equity release loan.
If the sale of your home achieves more than what was owed on the loan, then the remainder will be distributed amongst your heirs as per your will.
One way your family can inherit your equity release is if you release the money to give them an early inheritance.
This does not, however, negate the fact that your home will be sold when you pass away to repay your loan.
Common Questions
How Does Equity Release Impact the Ownership of My Home?
What Is the Financial Impact of Equity Release?
How Can Equity Release Affect My Estate and Inheritance?
Does Equity Release Affect My Pension or Benefits?
Can Equity Release Impact My Ability to Move or Sell My Home?
In Conclusion
The equity release process can be an important and beneficial financial decision for some people. However, it is not suitable for everyone.
The most important thing to remember is it may negatively affect the inheritance you leave to your heirs.
It is essential to have a conversation with your loved ones and consult an independent financial advisor or broker to determine the impacts of equity release on you and your family.