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Equity Release: How Does It Affect Your Will?

· 25 min

Note: The following scenario is fictional and used for illustration.

Margaret, 68, took out a £60,000 lifetime mortgage in 2015 to pay off her debts and help her daughter with a house deposit. Her will, written 15 years earlier, left her £350,000 Bristol home equally between her two children.

When Margaret died in 2024, the equity release loan had grown to £112,000 with accumulated interest. After repaying the lender, only £238,000 remained—far less than her children expected. Even worse, because Margaret had already gifted £20,000 to one daughter from the equity release, the estate was no longer split equally, causing conflict between siblings.

Margaret intended to help both children fairly but didn't realize equity release would dramatically reduce the inheritance or create inequality. A simple will update could have prevented the family rift.

Over 15,000 UK customers accessed equity release in Q4 2024 alone, with average loans of £115,243. Yet many don't update their wills to reflect how this affects beneficiaries.

This guide explains exactly how equity release impacts your will, when you need to update it, and how to protect your beneficiaries from unintended consequences.

Table of Contents

What Is Equity Release? (Quick Overview)

Equity release allows you to access cash from your home equity while continuing to live there. It's designed for homeowners aged 55 or older who own their property outright or have a small outstanding mortgage.

The two main types are lifetime mortgages (the most common) and home reversion plans. With a lifetime mortgage, you borrow against your property's value, and the loan—plus accumulated interest—is repaid when you die or move into permanent care.

In Q4 2024, UK homeowners borrowed £622 million through equity release, a 16% increase from the previous year. This growing market serves asset-rich but cash-poor retirees who need funds for home repairs, care costs, or quality-of-life improvements.

Unlike traditional mortgages, you make no monthly repayments. The interest compounds over time, meaning the debt grows significantly the longer you live.

Consider David, 70, who borrows £80,000 at 6.5% interest. If he lives another 15 years, the debt grows to approximately £197,000 due to compound interest—more than double the original loan.

This compounding effect is why equity release impacts your will so dramatically. The debt secured against your property must be repaid from your estate before beneficiaries inherit anything.

How Equity Release Reduces Your Estate's Value

Your estate comprises all your assets—property, savings, investments—minus any debts. When you take out equity release, you create a debt against your property that must be repaid before beneficiaries receive their inheritance.

The critical factor many people overlook is compound interest. Equity release loans typically charge 6% to 7.5% annually, and because you make no monthly payments, the interest compounds continuously.

Let's look at a worked example. Sarah owns a £400,000 property and takes out £100,000 in equity release at 6.5%. After 10 years, the debt has grown to approximately £187,000. When Sarah dies and the property sells for £440,000 (assuming 2% annual growth), the lender receives £187,000 first. Her beneficiaries inherit £253,000—not the £440,000 property value they expected.

Here's what matters: if Sarah had spent or gifted the £100,000, her estate genuinely decreased. But if she kept the money in savings, her estate value remained the same—it just shifted from property equity to cash savings.

Years Since Equity Release Original Loan Total Debt at 6.5% Property Value (2% growth) Net to Beneficiaries
0 years £60,000 £60,000 £300,000 £240,000
5 years £60,000 £82,350 £331,224 £248,874
10 years £60,000 £112,980 £365,529 £252,549
15 years £60,000 £155,010 £403,224 £248,214

Notice how debt growth at 6.5% significantly outpaces property growth at 2%. Over time, despite your property increasing in value, your beneficiaries' inheritance barely grows—and may even decrease.

Emma took out £50,000 in equity release and spent it on home improvements and holidays. Her estate decreased by the loan amount plus interest. James took out the same £50,000 but kept it in savings. His estate value stayed roughly the same, but his property equity decreased while his cash savings increased.

The key insight: equity release doesn't automatically reduce your estate for inheritance purposes unless you spend or gift the funds.

When You Must Update Your Will After Equity Release

Not every equity release situation requires a will update, but many do. Here's when you must, should, or may not need to revise your will.

You MUST update your will if it specifies fixed monetary amounts. For example, "£100,000 to my daughter Sarah, £150,000 to my son James." If equity release and compound interest reduce your estate below these amounts, your executor may be unable to fulfill these bequests. This creates legal complications and delays estate administration.

You SHOULD update if you've used equity release funds to help one beneficiary. Margaret's story at the start illustrates this perfectly. She gifted £20,000 from her equity release to one daughter for a house deposit. Her will still stated "split equally," but one child had already received £20,000 more. This created the perception of unfairness and family conflict.

You SHOULD update if you want to add inheritance protection provisions. Some equity release plans let you ringfence a percentage of your property's value for beneficiaries. Your will should reference this protection to ensure your executor understands your intentions.

You MAY NOT need to update if your will uses percentages like "50% to each child." Percentages automatically adjust to your estate's actual value. However, you should still review your will to ensure the reduced estate doesn't create unintended consequences for specific bequests or arrangements.

You MUST update if other circumstances have changed alongside equity release—new grandchildren, divorce, remarriage, or if your executor is no longer suitable.

When updating your will, you can create a codicil (a simple amendment) or write an entirely new will. A codicil works well for minor changes like adjusting specific monetary gifts or adding a note about inheritance protection. You'll need a new will for significant restructuring, adding or removing beneficiaries, or changing executors.

Consider Sarah's situation. Her original will stated: "£80,000 to my son Mark, £80,000 to my daughter Lisa, remainder split equally."

After taking out £60,000 equity release (growing to £90,000 by her death), her £280,000 estate became £190,000 after loan repayment. The specific gifts totaled £160,000, leaving £30,000 remainder. Mark and Lisa each received £95,000 (£80,000 specific gift plus £15,000 from remainder).

This arrangement still worked, but it no longer reflected Sarah's true intentions. A better approach: update to percentage-based distribution so both children share the equity release impact equally.

How Equity Release Affects Different Types of Wills

Different will structures interact with equity release in distinct ways. Understanding these interactions helps you determine whether your existing will still serves your intentions.

Mirror wills for couples are common arrangements where each spouse leaves everything to the surviving spouse, then to children after both die. Equity release adds complexity here. If one spouse dies, the survivor inherits the house with the equity release debt still attached—and the debt continues growing with compound interest.

Tom and Linda had mirror wills. When Tom died, Linda inherited their home with a £70,000 equity release debt. She lived another eight years, during which the debt grew to approximately £116,000 at 6.5% annual interest. The longer Linda lived, the more the inheritance shrank.

Wills with trusts create additional complications. Some people place property in trust for beneficiaries to protect assets from divorce or bankruptcy. Equity release means trustees may need to manage or repay the debt. This situation requires specialist legal advice to ensure trust provisions accommodate the debt properly.

Wills with specific property bequests need careful reconsideration. If your will states "I leave my house to my daughter Emma," Emma doesn't inherit the property free and clear—she inherits it with the equity release debt attached.

Emma has two options: repay the debt from other sources to keep the property, or let the executor sell it, repay the lender, and receive the remainder. Your will should clarify whether the beneficiary inherits property "subject to any mortgage or charge" or whether the executor should sell and distribute proceeds.

Wills with residuary clauses like "remainder of my estate to be divided equally among my children" still function with equity release, but the residuary estate shrinks significantly. Percentage-based residuary clauses work mathematically, but beneficiaries receive much less than they might expect.

If your will involves anything more complex than straightforward percentage splits, consult a solicitor specializing in both equity release and estate planning. The interaction between equity release debt and complex will provisions creates potential for unintended consequences that only specialist advice can properly address.

Protecting Inheritance for Your Beneficiaries

If you've taken out equity release or are considering it, several strategies can help preserve some inheritance for your children and grandchildren.

Inheritance protection (also called inheritance guarantee) is offered by many equity release providers. This feature allows you to ringfence a percentage of your property's value—typically 10% to 50%—for your beneficiaries. Regardless of how much your loan grows, your beneficiaries are guaranteed to inherit at least this protected amount.

For example, a £300,000 property with 30% inheritance protection guarantees minimum £90,000 for beneficiaries, even if the equity release loan grows larger than expected.

The trade-off: inheritance protection limits how much you can initially borrow. You can only borrow against the unprotected percentage of your property's value. Approximately 56% of new equity release plans in 2024 were drawdown products, allowing customers more control over borrowing amounts and better ability to combine borrowing with inheritance protection.

Voluntary interest payments prevent debt from compounding. Most equity release plans allow you to make regular interest payments if you choose. This keeps the debt at its original amount instead of letting it grow.

For a £60,000 loan at 6.5%, you'd pay approximately £325 monthly in interest. In 2023, equity release customers made voluntary repayments totaling £120 million, demonstrating this strategy's growing popularity.

Most plans allow 8% to 15% of the loan amount to be repaid annually without penalties. Over 20 years, voluntary payments can save significant amounts in interest that would otherwise compound.

Drawdown lifetime mortgages let you borrow only what you need, when you need it, rather than taking a lump sum. You establish a facility—say £100,000—but only draw amounts as required. You pay interest only on amounts actually drawn, not the full facility.

For example, draw £30,000 initially, another £20,000 in year three, and £15,000 in year six. You'll pay considerably less interest than if you'd taken £65,000 upfront, preserving more equity for beneficiaries.

Downsizing as an alternative avoids equity release entirely. Sell your larger property, buy something smaller and cheaper, and use the difference for your needs. You avoid compound interest completely.

For instance, sell a £400,000 home, buy a £250,000 flat, gift £100,000 to children, and keep £50,000 for emergencies. If you survive seven years after making the gift, it becomes inheritance tax-free under the seven-year rule.

Protection Method Inheritance Preserved Borrowing Reduced? Cost/Restrictions
Inheritance Protection (30%) £90,000 guaranteed (on £300k property) Yes—can only borrow against 70% Limits initial loan size
Voluntary Interest Payments Prevents debt growth beyond original loan No Requires monthly payments (£325/month on £60k at 6.5%)
Drawdown Mortgage Borrow less = more equity preserved Yes—only draw what needed None, but requires discipline
Downsizing No debt, full equity preserved N/A (no equity release) Moving costs, emotional impact

Each strategy has distinct advantages depending on your circumstances, property value, and how much you need to borrow.

Equity Release and Inheritance Tax: What Changes?

Equity release can reduce your inheritance tax liability by lowering your estate's value—but only if you handle it correctly.

The inheritance tax nil-rate band is £325,000, with an additional £175,000 residence nil-rate band if you leave your main home to direct descendants. These thresholds are frozen until 2030. Married couples can combine allowances, creating a potential £1 million tax-free threshold.

Inheritance tax charges 40% on estates exceeding these thresholds. Here's where equity release becomes relevant: the debt is deducted from your estate value before calculating IHT.

A £600,000 estate normally pays IHT on £275,000 (£600k minus £325k nil-rate band), which equals £110,000 tax. With £150,000 equity release debt, the estate becomes £450,000, creating IHT on £125,000—just £50,000 tax. Your beneficiaries save £60,000 in IHT.

But here's the critical caveat: this only works if you spent or gifted the equity release funds. If you took out £150,000 and it's still sitting in your savings account, your estate is still £600,000 (£450k property plus £150k cash). You've gained no IHT benefit.

The seven-year rule for gifts creates potential IHT planning opportunities. Gifts made within seven years of death may still count toward your estate for IHT purposes. However, if you survive seven years after making a gift, it becomes fully IHT-exempt.

Strategy: Use equity release to make gifts to children early, survive seven-plus years, and those gifts become IHT-free. Margaret releases £50,000 in 2020, gifts it to her son, and dies in 2028—eight years later. The gift is fully IHT-exempt, potentially saving her estate £20,000 in tax.

If you die between three and seven years after making a gift, taper relief reduces the IHT charged on that gift on a sliding scale.

Important 2027 pension rule change: From April 6, 2027, unused pension funds will be included in estates for IHT calculation. This change may increase the number of estates liable for IHT, making equity release IHT planning potentially more relevant for some families.

Critical warning about IHT planning with equity release: The interest you pay on equity release often exceeds any IHT savings. Release £100,000, pay 6.5% annual interest over 10 years, and you've paid approximately £87,000 in interest. IHT saved on £100,000 is £40,000. Net result: £47,000 loss compared to doing nothing.

Equity release IHT strategies only make financial sense if you genuinely need the funds now for other purposes (care costs, home improvements, gifting to help family). Don't take out equity release solely for IHT planning without detailed calculations and professional advice.

Peter, 72, had a £700,000 estate facing £80,000 IHT liability. He took out £200,000 equity release, gifted £100,000 to each child, and survived eight years. At death, his estate was approximately £345,000 (£700k property minus equity release debt that grew to £355,000 at 6.5% over eight years). The gifts he made are now outside his estate due to the seven-year rule. His children received £200,000 early plus £345,000 at death—total £545,000. Without equity release, they would have received £620,000 (£700k minus £80k IHT). The equity release interest cost them £75,000.

This complexity demonstrates why professional IHT advice is essential before using equity release as a tax planning tool.

Should You Tell Your Beneficiaries About Equity Release?

Transparency about equity release prevents family conflict and estate administration complications, but many people struggle with this conversation.

The case for full transparency: Informing beneficiaries prevents shock and disappointment after your death. They can adjust their own financial planning accordingly rather than counting on inheritance that won't materialize. Your executor absolutely needs to know about the equity release to properly administer your estate.

Family conflict frequently erupts when beneficiaries discover significant debts reduced their inheritance. Adult children may feel their parent was taken advantage of or made poor decisions. Transparency allows you to explain your reasoning and demonstrate you made an informed choice.

Why people delay telling family: Fear of seeming selfish for "spending the children's inheritance" is common. Some worry about judgment over financial decisions. Others don't want to disappoint children who may be counting on inheritance for their own house purchases or retirement planning.

Some people feel it's "their business"—they earned the property, and adult children have no say in how they use it. This is legally accurate but may not prevent emotional fallout later.

Finding middle ground: You don't need your children's permission to take out equity release—it's your property. But transparency respects their expectations and helps maintain family relationships.

Frame the conversation positively: "I'm using some equity to improve my quality of life now" or "This lets me help you with a house deposit now rather than you waiting for inheritance" or "This ensures I can afford care at home if I need it."

What your executor must know: Your executor cannot properly administer your estate without knowing about equity release. They need the lender's name, the approximate loan amount, and where to find the welcome pack and documentation.

Store your equity release paperwork with your will. Inform your executor annually about the approximate debt size, as it grows with compound interest. Delays in finding equity release information can cost thousands of pounds in additional interest while the executor searches for documentation.

What beneficiaries should know: That you've taken equity release and the general reason why. That the property will be sold to repay the lender, with only the remainder going to them. A rough estimate of inheritance (though property values and interest rates change). That this is your decision, made after careful consideration.

Example conversation starter: "I wanted to let you know I've arranged equity release on the house. It means I can [pay off my debts / help you now with a house deposit / afford care at home / enjoy my retirement more comfortably]. When I die, the house will be sold to repay the lender, and you'll inherit what's left—which will be less than the full property value. I wanted you to know so there are no surprises later."

This straightforward approach acknowledges the impact on inheritance while making clear it's your considered decision. Most adult children, when properly informed, support parents using their own assets to improve their later years.

What Happens to Equity Release When You Die?

Understanding the practical process after death helps executors and beneficiaries prepare for what happens next.

Immediate steps: Your executor contacts the equity release lender with your death certificate and applies for probate. The lender provides a final settlement figure—the original loan plus all accrued interest and any fees.

Most lenders allow 12 months to repay without early repayment charges, though some offer up to three years. This timeframe allows the executor to market and sell the property without rushing into a poor sale price.

Typical timeline: Death notification to lender occurs within one to two months. Probate is granted in three to six months typically, though complex estates take longer. The property is marketed and sold within three to six months. The lender is repaid within 12 months of death. Distribution to beneficiaries occurs after the lender receives full repayment.

Property sale is most common: In the vast majority of cases, the executor sells the property to repay the equity release debt. Any surplus funds after repaying the lender go to your estate for distribution according to your will.

Can beneficiaries keep the property? Yes, if they repay the equity release loan from other sources—their own savings, a new mortgage in their name, or using other inherited assets.

Sarah inherits her mother's £350,000 home with £140,000 equity release debt. Sarah wants to keep the family home, so she takes out a £140,000 mortgage in her own name to repay the lender. She now owns a £350,000 property with her own £140,000 mortgage.

This scenario is relatively uncommon. Most executors find selling the property is the simplest way to settle the debt and distribute the estate fairly among multiple beneficiaries.

No negative equity guarantee: All Equity Release Council members must provide a no negative equity guarantee. This means you'll never owe more than your property's sale value when it's sold.

If David's property sells for £200,000 but his equity release debt is £220,000, the lender receives £200,000 and writes off the remaining £20,000. Beneficiaries receive nothing, but they owe nothing personally. The shortfall doesn't become their debt.

This guarantee protects beneficiaries from owing money from their own pockets to repay their parent's equity release debt.

What if there were two borrowers (couples)? Equity release continues until both borrowers die or move into permanent care. When the first person dies, the surviving spouse continues living in the property. The debt continues growing with compound interest. Only when the second person dies or moves into permanent care does repayment become due.

Some newer Joint Borrower Sole Proprietor (JBSP) plans allow a non-owning partner to remain in the property even after the owner dies, providing additional protection for unmarried couples.

Common Mistakes to Avoid

Learning from others' mistakes helps you avoid costly errors that reduce your beneficiaries' inheritance or create family conflict.

Mistake #1: Not updating your will after equity release. Fixed monetary bequests may become impossible to fulfill if equity release reduces your estate below the specified amounts. Your executor may need to apply for court direction to resolve the conflict, delaying estate administration by six to 12 months and reducing inheritance further through legal costs.

Mistake #2: Taking out equity release without telling your executor. Your executor discovers the debt during estate administration, creating unexpected complications. They may not factor in the debt when making early decisions about estate management, potentially mismanaging assets. Inform your executor in writing, provide copies of your welcome pack, and update them annually about approximate debt size.

Mistake #3: Assuming equity release automatically reduces IHT. It only reduces IHT if you spend or gift the money, not if you keep it in savings. You pay compound interest for no IHT benefit, making your beneficiaries worse off than if you'd done nothing.

Mistake #4: Using equity release for IHT planning without calculating interest costs. Interest on equity release (6% to 7.5%) often exceeds IHT savings (40% on amounts over threshold). Calculate carefully: £100,000 equity release at 6.5% over 10 years costs approximately £87,000 in interest, while IHT saved on £100,000 is only £40,000—net loss of £47,000.

Get professional IHT advice before using equity release as a tax planning strategy. The mathematics rarely work in your favor unless you genuinely need the funds now for other purposes.

Mistake #5: Not considering inheritance protection when available. You may borrow more than you need, leaving nothing for beneficiaries and creating family disappointment. Consider inheritance protection options that guarantee your children will inherit at least a specified percentage of your property's value, even if it limits your initial borrowing.

Mistake #6: Failing to keep will and equity release documents together. Your executor can't find equity release details, delaying repayment while interest continues accruing daily. Additional weeks or months of unnecessary interest could cost £1,000 or more.

Store your equity release welcome pack with your will in the same secure location. Tell your executor where both documents are kept and update them if you move these documents.

Mistake #7: Gifting unequally from equity release without updating will. You gift £30,000 to one child from equity release for a house deposit, but your will still says "split equally." The child who received the gift also gets an equal share of the reduced estate. Their sibling receives less overall, creating family conflict and potential legal challenges.

If you gift to one beneficiary from equity release funds, update your will to acknowledge this: "noting that I have previously gifted £30,000 to [child's name] in [year]" and adjust distribution accordingly.

A single afternoon spent updating your will and informing your executor prevents these costly mistakes and protects your family from conflict and financial loss.

Frequently Asked Questions

Q: Do I need to update my will if I take out equity release?

A: You should review your will after taking out equity release, especially if it specifies fixed monetary amounts for beneficiaries. Equity release reduces your estate's value, which can affect inheritance distribution. If your will states percentages rather than fixed amounts, it may still work, but a review ensures all beneficiaries are treated fairly.

Q: How does equity release affect my inheritance tax liability?

A: Equity release can reduce your inheritance tax liability by lowering your estate's value. The loan amount and accrued interest are deducted from your estate when calculating IHT. However, if you keep the released funds in savings rather than spending them, your estate value remains unchanged.

Q: What happens to equity release when I die?

A: When you die, your executor must repay the equity release loan from your estate, usually by selling the property. The lender must be repaid the original loan plus all accumulated interest. Any remaining funds after repaying the loan go to your beneficiaries according to your will.

Q: Can I protect some inheritance for my children with equity release?

A: Yes, many equity release plans offer inheritance protection, allowing you to ringfence a percentage of your property's value (typically 10-50%) for your beneficiaries. This guarantees your children will inherit at least that protected amount, regardless of how much the loan grows.

Q: Should I tell my beneficiaries I've taken out equity release?

A: Yes, you should inform your beneficiaries and executor about your equity release plan. They need to know the property has a loan secured against it and that they'll receive less inheritance than the property's full value. Transparency prevents surprises and family conflict after your death.

Q: Does equity release affect who I can leave my property to?

A: Equity release doesn't change who you can leave your property to in your will. However, beneficiaries won't inherit the property itself—they'll inherit what remains after the equity release loan is repaid. The executor will typically sell the property to repay the lender, then distribute remaining funds.

Q: What if my equity release debt exceeds my property value?

A: If your equity release provider is registered with the Equity Release Council, you have a no negative equity guarantee. This means you'll never owe more than your property's sale value, protecting your beneficiaries from debt. The lender absorbs any shortfall.

Creating or Updating Your Will After Equity Release

Key takeaways:

  • Equity release creates debt against your property that significantly reduces what you leave to beneficiaries
  • Review your will after equity release, especially if it contains fixed monetary amounts
  • Options exist to protect some inheritance—inheritance protection features, voluntary interest payments, drawdown plans
  • Transparency with your executor and beneficiaries prevents surprises and family conflict
  • Equity release can reduce inheritance tax liability, but only if you spend or gift the released funds

Taking out equity release doesn't mean you're being selfish. You've worked hard for your home, and using its equity to improve your later years or help your family now is a valid choice.

But protecting your family also means ensuring your will reflects this major financial decision. The last thing you want is for an outdated will to create confusion, delays, or conflict after you're gone.

Whether you're updating an existing will or creating one for the first time after equity release, WUHLD makes it simple. Create your legally binding will online in just 15 minutes for £99.99 (vs £650+ for a solicitor).

For £99.99, you'll get:

  • Your complete, legally binding will
  • A 12-page Testator Guide explaining how to execute your will properly
  • A Witness Guide to give to your witnesses
  • A Complete Asset Inventory document

You can preview your entire will free before paying anything—no credit card required.

Preview Your Will Free – No Payment Required

  • How to Update Your Will – Step-by-step guide to amending your will after life changes like equity release
  • Understanding Inheritance Tax in the UK – Learn how IHT works and how estate value affects your tax liability
  • Mirror Wills for Couples: What You Need to Know – How equity release affects joint estate planning for married couples
  • What to Include in Your Will – Ensure your will covers all your assets, including property with equity release
  • Choosing the Right Executor for Your Will – Why your executor needs to know about equity release and other complex assets

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.

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