Fifth of equity release users give cash to loved ones as older people race to escape Labour inheritance tax hike

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More than a fifth of those who use equity release now plan to give some of the money away, as older homeowners look for ways to avoid Labour’s inheritance tax hike. 

The insurer and equity release provider, Canada Life, said that in the first six months of this year, 22 per cent of equity release applicants said they planned to gift some or all of the money to family or friends.  

In the same period the year before, just 13 per cent of applicants said they would give some of the cash away.

It comes alongside Rachel Reeves’ move to bring unspent pension cash into the scope of inheritance tax from April 2027.

This means that more estates will have to pay the tax, as including their pension alongside their home and any other assets will push the total value of their estate over the threshold. 

This is £325,000 for a single person, rising to £500,000 if they are passing on their main home to their children or grandchildren. 

Read more: How does equity release work?

Planning ahead: Some equity release borrowers are using it to potentially reduce how much inheritance tax is due on their estate, by bringing down its overall value

Married couples can pool their allowances, meaning they can pass on a total of £1million if they pass their home to direct descendants. 

Rising house prices are also pushing more people into the inheritance tax net. 

By releasing equity from their home before they die, homeowners can reduce the value of their estate and therefore, potentially, the inheritance tax due on it. 

Recent figures from the Equity Release Council show increased interest in the form of borrowing, indicating a 10 per cent increase in total equity release lending between April and June 2025, compared with the same three months in 2024. 

However, it’s vital to seek proper advice* before taking this route, as there are also plenty of pitfalls. 

If someone gifted money that came from releasing equity to their family, and then died within less than seven years, it may still be subject to inheritance tax thanks to the seven-year rule. 

> Read This is Money’s full guide to inheritance tax  

Equity release can also affect access to state benefits. 

The interest charged on the loans, which is taken from the value of the home after the borrower’s death, also means descendants will be left with less of an inheritance than they otherwise would be.  

Sadna Zaman, home finance proposition development manager at Canada Life, said: ‘We’re seeing more people turn to equity release not just for one-off expenses or big-ticket projects like home improvements or paying off an existing mortgage, but increasingly as an estate planning tool. 

‘With the Government recently confirming its intention to bring unused pension funds into the scope of inheritance tax from April 2027, we anticipate that even more individuals will be turning to equity release as a way to support family members through gifting, while also potentially reducing their future inheritance tax liabilities.’

Making home improvements was the top motivation for releasing equity among Canada Life’s customers, with 43 per cent using some of the money for this in the first half of 2025. 

This overtook clearing existing an existing mortgage which had been in first place at 42 per cent the previous year, but in the first half of 2025 was cited by 27 per cent of respondents. 

This ranked jointly with covering day-to-day living costs, also at 27 per cent, a sharp increase from 20 per cent in the first six months of 2024. 

Holidays were a motivation for 25 per cent of customers, up from 21 per cent at the same time in 2024, followed by gifting at 22 per cent. 

Consolidating debt was mentioned by 21 per cent in 2024, but fell out of the top five this year.  

Zaman added: ‘Increasing numbers of homeowners citing day-to-day-living costs and emergency funds as the reasons for their application signals that the cost of living in retirement is becoming more challenging.’