Taking Equity Release to Gift Money to Family

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Taking Equity Release to Gift Money to Family

Can you use equity release to gift money to family?

Yes, equity release can sometimes be used to gift money to family.

With a lifetime mortgage, eligible homeowners aged 55 or over may be able to release money from their home while continuing to live there and retain ownership.

The money can often be used for many purposes, including helping children, grandchildren or other family members.

• Common reasons include:
• helping with a house deposit
• supporting a first-time buyer
• helping family repay debts
• paying for education or training
• helping with wedding costs
• supporting a family business
• helping with home improvements
• contributing to care or medical costs
• helping after divorce or separation
• giving an early inheritance
• supporting family during financial difficulty

However, the fact that you can gift the money does not mean you should.

Equity release is a long-term commitment secured against your home. The adviser should check whether the gift is affordable and suitable for you, not just helpful for the person receiving it.

You can read more about how lifetime mortgages work here: /equity-release/how-does-a-lifetime-mortgage-work/

Why do people use equity release to help family?

Many homeowners are asset-rich but cash-limited.

They may own a valuable home but not have enough savings or income to help family in the way they would like.

Equity release may be considered because it can allow them to give financial support during their lifetime.

Some people like the idea of seeing family benefit now rather than waiting for inheritance later.

• For example, they may want to:
• help a child buy their first home
• reduce a family member?s mortgage
• help grandchildren with university
• support family through a difficult period
• help children avoid high-interest debt
• provide an early inheritance
• make life easier for loved ones
• contribute to family care needs

These can be understandable reasons. But they need to be balanced against your own future security.

The person receiving the gift benefits now. You carry the cost and risk of the lifetime mortgage.

Using equity release for a house deposit

Helping family with a house deposit is one of the most common reasons for gifting money from equity release.

• A deposit gift may help a child or grandchild:
• buy their first home
• borrow less
• access a better mortgage rate
• move to a suitable property
• avoid renting for longer
• reduce monthly mortgage payments
• buy after divorce or separation

This can make a real difference.

However, there are important points to consider.

Mortgage lenders usually ask whether a deposit is a gift or loan. If it is a gift, the person giving the money may need to sign a gifted deposit declaration confirming they do not expect repayment or ownership rights.

If you expect the money to be repaid, that may affect the recipient?s mortgage application and affordability.

You should be clear from the start whether the money is a gift, loan or something else.

Should the money be a gift or a loan?

This is an important question.

A gift usually means the recipient does not need to repay you.

A loan means they are expected to repay some or all of the money.

A family loan may feel simple, but it can create issues.

• You should consider:
• whether the recipient can afford repayments
• whether the loan should be documented
• what happens if repayments stop
• whether interest is charged
• whether other family members think it is fair
• what happens if the recipient separates from a partner
• whether the loan affects their mortgage application
• whether legal advice is needed
• what happens if you need the money later

If you take equity release and lend the money to family, you still owe the lifetime mortgage even if they do not repay you.

This can leave you exposed.

How does gifting affect inheritance?

Gifting money from equity release usually reduces inheritance.

There are two effects.

First, the money is no longer in your estate because you have given it away.

Second, the lifetime mortgage and interest are usually repaid from your home when you die or move permanently into long-term care.

If interest rolls up over time, the amount owed can grow and reduce the equity left for your beneficiaries.

This may be acceptable if your intention is to give an early inheritance. But it should be discussed and understood.

• Potential inheritance issues include:
• some beneficiaries receiving more than others
• family disputes after death
• reduced estate value
• less money available for care or later-life needs
• unclear records of gifts
• beneficiaries not understanding the cost
• gifts creating tax questions

It can help to keep records of what was gifted, to whom, when and why.

Read more here: /equity-release/equity-release-and-inheritance/

Does gifting from equity release avoid inheritance tax?

Equity release should not be taken simply to avoid inheritance tax.

Gifting rules can be complex. A gift may still be relevant for inheritance tax depending on the timing of the gift, your total estate and how long you live after making it.

The recipient may need to understand that tax could become payable later in some circumstances.

There may also be rules around gifts with reservation of benefit, estate planning and the interaction between gifts and care funding.

An equity release adviser can explain the mortgage implications, but they may not be able to give tax advice unless qualified to do so.

For inheritance tax planning, you may need specialist tax, legal or estate planning advice.

Could gifting affect care funding?

Yes. This is very important.

If you give away money and later need care, the local authority may consider whether you deliberately reduced your assets to avoid care fees. This is often called deprivation of assets.

If the authority decides that deprivation of assets applies, it may still treat you as having the money when assessing care funding.

This does not mean every gift is a problem. But large gifts, especially where care needs are foreseeable, need careful consideration.

• Before gifting money from equity release, ask:
• could I need care in the future?
• am I keeping enough money for my own needs?
• could this gift be questioned later?
• have I taken care funding advice?
• is the gift reasonable for my circumstances?
• what records should I keep?

Care funding rules can be complex, and specialist guidance may be needed.

Could benefits be affected?

Yes. Equity release and gifting can affect means-tested benefits.

If you release money and keep it in savings before gifting it, it may be treated as capital. This could affect benefits such as Pension Credit, Council Tax Support or help with care costs.

If you give the money away and later claim means-tested benefits, the benefit authority may consider whether you deliberately reduced your capital.

• The impact depends on:
• how much you release
• whether you take a lump sum or drawdown
• how long you hold the money
• who receives the gift
• what benefits you receive
• your existing savings
• your reason for gifting
• timing and circumstances
• benefit rules at the time

If benefits are relevant, do not proceed without a benefit check.

Read more here: /equity-release/equity-release-and-benefits/

Could gifting leave you short of money?

Yes. This is one of the biggest risks.

You may want to help family, but your own needs must come first.

• Before gifting money, consider whether you have enough for:
• everyday living costs
• home repairs
• emergencies
• future care
• medical or mobility needs
• replacing a car
• rising bills
• supporting your partner
• moving home
• maintaining the property
• unexpected family needs
• leisure and quality of life

Once money is gifted, you may not be able to get it back.

Even if family intend to repay or support you later, their circumstances can change.

Can family pay the interest or make repayments?

Possibly, but this needs careful thought.

Some families agree that the recipient of the gift will help make repayments on the lifetime mortgage.

This might reduce interest build-up, but it can create risks.

• Consider:
• are repayments voluntary or expected?
• what happens if the family member stops paying?
• can the family member afford it?
• are other beneficiaries comfortable with the arrangement?
• should there be a written agreement?
• could it affect tax or estate planning?
• does the lender allow payments from that source?
• what happens if relationships change?

You remain responsible for the lifetime mortgage. If family repayments stop, the loan remains secured against your home.

Can you gift money gradually instead?

Sometimes gifting smaller amounts over time may be safer than one large gift.

• This could involve:
• using drawdown equity release
• gifting from income where affordable
• making smaller one-off gifts
• helping with specific costs
• paying suppliers directly
• delaying the gift
• agreeing a smaller amount
• using savings instead of borrowing

Drawdown may reduce interest build-up if you do not need to release all the money at once. Interest is usually charged only on money actually released, not on the unused reserve.

However, each withdrawal and gift still needs to be considered carefully.

Read more here: /equity-release/lump-sum-vs-drawdown-equity-release/

Should all family members be involved?

Not always, but family conversations can help.

If one child or grandchild receives a significant gift, other beneficiaries may feel it is unfair unless the reason is clear.

• You may want to involve family if:
• the gift is large
• inheritance expectations may change
• one person benefits more than others
• family may help with repayments
• someone expects to inherit the property
• the recipient is buying a home
• there could be future care needs
• you want transparency

You do not usually need family permission to take equity release. But open discussion can reduce confusion and disputes later.

You should also make sure no one is pressuring you.

What if family are pressuring you to release money?

You should not take equity release because someone else is pressuring you.

• Pressure can be direct or subtle. It may include:
• being made to feel guilty
• being rushed into a decision
• family relying on the money before advice is complete
• being told it will not affect you
• being discouraged from taking independent advice
• someone controlling the conversation
• feeling unable to say no
• being asked to borrow more than you are comfortable with

A good adviser should be alert to pressure or vulnerability.

Equity release should only proceed if it is your decision and it is suitable for your circumstances.

Can equity release help family without giving a lump sum?

Possibly. There may be other ways to help.

• Instead of giving a large lump sum, you might consider:
• helping with monthly costs from income
• paying for a specific item
• contributing to professional fees
• helping with a smaller deposit
• offering short-term support
• helping family budget
• supporting them to access advice
• contributing gradually
• providing non-financial help
• waiting until your own position is clearer

Sometimes smaller, targeted support can help without creating the same long-term risk.

What alternatives should you consider?

• Before using equity release to gift money, consider:
• using savings if affordable
• making a smaller gift
• delaying the gift
• gifting from income
• family using their own mortgage options
• family saving for longer
• a family loan with legal advice
• guarantor or family support mortgages, where suitable
• downsizing
• selling another asset
• checking whether the recipient has other support
• contributing to a specific cost instead of giving cash
• not gifting if it risks your security

Equity release may still be suitable, but it should not be the default answer.

Read more here: /equity-release/alternatives-to-equity-release/

When might gifting with equity release be suitable?

• Using equity release to gift money may be suitable where:
• you are aged 55 or over
• you want to help family during your lifetime
• the gift is affordable
• you understand the long-term cost
• your own future needs are protected
• benefits have been checked
• care funding has been considered
• inheritance impact is understood
• family expectations are clear
• alternatives have been reviewed
• the product has suitable safeguards
• you are not being pressured

The recommendation should focus on your suitability, not just the recipient?s need.

When might it be unsuitable?

• Using equity release to gift money may be unsuitable if:
• you cannot afford to give the money away
• you may need the money later
• benefits would be affected
• care funding concerns are significant
• the recipient could use another option
• you are being pressured
• other beneficiaries may be unfairly treated
• tax or legal issues are unclear
• the gift is for non-essential spending
• you do not understand the interest cost
• you want to preserve inheritance
• alternatives are more suitable
• the amount requested is higher than you are comfortable with

A good adviser should be willing to say no if gifting creates too much risk.

Questions to ask before using equity release to gift money

Before deciding, ask:

• Why do I want to make this gift?
• Is the gift essential or optional?
• Can I afford to give the money away?
• How much do I need to keep for myself?
• Could I need care in the future?
• Could benefits be affected?
• Could care funding be affected?
• Could inheritance tax be relevant?
• Is the money a gift or a loan?
• Does the recipient understand the source of the money?
• Are other family members affected?
• Should I involve my solicitor?
• Should I take tax advice?
• Could I gift a smaller amount?
• Would drawdown be better than a lump sum?
• What happens if family relationships change?
• What alternatives have been considered?

A suitable recommendation should answer these clearly.