"Equity Release: A Powerful Tool for Inheritance Planning in the Face of Rising Tax Challenges"

At My Later Life, we couldn’t agree more with the points raised in this insightful article by Sanjay Gadhia, Head of Sales at Standard Life Home Finance.

The budget freeze on inheritance tax (IHT) thresholds, coupled with rising property values, has made IHT a growing concern for many families.

As highlighted in the article, equity release, particularly through lifetime mortgages, provides a compelling solution for managing estates, helping clients support their loved ones in real-time while potentially reducing future tax liabilities.

This approach aligns perfectly with our belief that later-life mortgages play an essential role in modern financial planning, offering flexibility and control in passing on wealth to the next generation. We believe advisers should seriously consider the points raised in this article when supporting their clients.

Written by Mr Sanjay Gadhia, who is the Head of Sales at later life lender Standard Life Home Finance

Now that the dust has settled from the Budget, we can see more quickly which clients are likely to be affected in the most significant ways. And I have little doubt advisers will be discussing inheritance tax (IHT) with their clients even more often as a result of the Chancellor’s speech.

Reforms to IHT were expected as the new government looked to address shortfalls in the budget. Response to this levy has been polarising, to say the least—according to the most recent polling by YouGov, around 52% of Brits class it as either unfair or very unfair, compared with just 22% who believe it is fair or very fair. I know from my conversations with advisers just how accurate these figures are.

While there had been rumours around reducing the nil rate bands for IHT, in the end the only move from the Chancellor was to freeze those bands for an additional two years. This means there will be no further changes regarding how much can be passed on tax-free until April 2030.

In effect, although this is a freeze, people will still be impacted more, thanks to the likely increase in the value of estates being passed onto loved ones. House prices show little sign of falling any time soon—indeed, the latest data from Halifax shows that the value of our homes hit a new record high in October, surpassing the previous record set in June 2022.

Given the ongoing housing shortage and the likelihood of further house price increases to come, that means that a greater number of estates will fall outside of the nil rate band.

This situation will be further exacerbated by the widening of the assets taken into account when establishing the size of an estate, with the Chancellor announcing inherited pensions will be included from 2027, while shares listed on the AIM stock exchange will too, albeit liable for a lower tax rate of 20%. This situation means that for many, IHT is becoming an ever more pressing issue.

Bringing the inheritance forward

The question of inheritance has been an important one within the later life lending market for a long time, acting as a driver for some customers in considering a lifetime mortgage.

After all, one of the big downsides of inheritance is the person passing on those assets never gets to see them put to use by their loved ones. They might know their children will use that money to purchase a home or set up a business, but that will all happen after they have died.

Similarly, there is the issue of timing. Those loved ones might be better served by having access to those funds in the present, rather than at whatever point in the future the customer passes away.

Lifetime mortgages offer an opportunity to take more control of passing on that inheritance, providing the customer with the ability to do it at a time of their choosing. We have seen customers unlock some of the value in their property in order to help their loved ones with the deposit on a property, to carry out home improvements, or even to cover school fees.

Considering a broader range of options

I strongly believe the budget only adds to the appeal of lifetime mortgages for those thinking about their inheritance options. After all, releasing equity from a property will reduce the eventual size of the estate once the homeowner passes away. That may mean a lower inheritance tax bill or even drop the value of the estate below the nil rate band entirely.

Obviously, there are no guarantees in this regard, but it’s an aspect of lifetime mortgages that should be raised with clients by advisers. Not only do they get to see their loved ones make use of the inheritance in real time, they may even reduce their IHT liabilities to boot.

It’s vital that advisers consider the full picture here and how one of their client’s largest assets—their home—can be best utilised to not only support their lifestyle in retirement but potentially reduce their eventual tax burden.

Looking to the future

With the uncertainty around the budget and its contents now cleared, we now have some welcome clarity about what lies ahead. The speculation and rumour that inevitably emerge in the build-up to such an event is often unhelpful and can lead to expensive mistakes as people try to preempt what may be included.

But with later life mortgages clearly set to play a larger part in quality financial planning, it’s crucial for advisers to consider how they go about supporting such clients. Whether they add later life lending advice to their own skillset or opt to partner with specialists, advisers will need to be able to deliver the full range of options to older clients.