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Mis-sold Equity Release. Does Equity Release Work For you?


In the UK, the rules for equity release typically require that:

  • You must be at least 55 years old for a lifetime mortgage or 60 years old for a home reversion plan.

  • You must own a property in the UK, and it should be your main residence.

  • The property must be over a certain value, generally at least £70,000.

  • Your property should be in reasonable condition and may need to meet certain criteria set by the equity release provider.

  • If you have an outstanding mortgage or loan secured against your home, you’ll need to pay it off when taking out equity release.

It’s important to note that equity release can affect your entitlement to means-tested benefits and can reduce the value of your estate. Therefore, it’s advised to seek professional financial advice before proceeding.

Equity release in the UK is a financial arrangement that allows homeowners aged 55 and above to access the equity tied up in their property without the need to sell or move out. Here’s a brief overview of how it works:

  1. Lifetime Mortgage: This is the most common type of equity release. It’s a loan secured against your home while you continue to live there. The loan, along with the accrued interest, typically doesn’t need to be repaid until you pass away or move into long-term care.

  2. Home Reversion Plan: This involves selling a part or all of your property to a reversion company in exchange for a lump sum or regular payments. You can continue to live in the home rent-free, but the company owns a share or all of your property. When the property is sold, usually after your death or move into care, the company receives its share of the proceeds.

Equity release can provide a lump sum, regular income, or both, and is designed to be a lifelong commitment. It’s important to consider the long-term implications, such as the reduction of your estate’s value and potential effects on means-tested benefits. 

Professional advice is highly recommended to ensure it’s the right choice for your circumstances.

Equity release can offer financial flexibility for homeowners over 55, but it comes with several risks:

  1. Accruing Interest: The interest on a lifetime mortgage, which is the most common type of equity release, compounds over time. This can significantly increase the overall debt, potentially consuming a large part of the home’s value.

  2. Impact on Inheritance: As the equity release loan grows due to accruing interest, there will be less equity left in your home to pass on to your heirs.

  3. Means-Tested Benefits: Releasing equity may affect your eligibility for means-tested benefits, as it could increase your income or assets to a level that exceeds the threshold for receiving such benefits.

  4. Early Repayment Charges: If you decide to repay the equity release early, you may face substantial charges.

  5. Reduced Options for Moving or Selling: Equity release may limit your ability to move or sell your home, as the property must usually be sold to repay the loan.

  6. Market Conditions: Changes in housing market conditions can affect the amount of equity you hold in your home and, consequently, the amount you owe when the property is sold.

It’s crucial to consider these risks and discuss them with a financial advisor before proceeding with equity release. They can help you understand how equity release would fit into your overall financial plan and explore any potential alternatives

The tax implications for equity release in the UK are generally favorable for homeowners. Here’s a summary of the key points:

  • Income Tax: Money received from equity release is not considered taxable income, so you won’t have to pay income tax on it.

  • Interest: If you deposit the released equity into a savings account, the interest earned may be subject to tax if it exceeds your Personal Savings Allowance (PSA). It’s advisable to check if the interest earned will exceed your PSA, as you will need to pay tax on the excess at your usual rate of income tax.

  • Inheritance Tax (IHT): Equity release can reduce the value of your estate, which may help lower your IHT liability if your estate is worth more than £325,000. However, if you’re considering equity release to reduce IHT or to give a cash gift to a family member, be aware of the rules and exemptions applicable to IHT.

  • Gifts: There is an annual limit of £3,000 for gifts that are exempt from IHT. Additionally, you can give £1,000 per person as a wedding gift, £2,500 to a grandchild, and £5,000 to a child. Gifts exceeding £325,000 within seven years before your death may be subject to IHT.

It’s important to consider these tax implications and consult with a financial advisor to understand how equity release might affect your overall tax situation. They can provide personalized advice based on your circumstances.

You can use equity release to pay off an existing mortgage in the UK. Here’s how it typically works:

  1. Lifetime Mortgage: If you opt for a lifetime mortgage, you can take out a loan secured against your home to pay off your current mortgage. You won’t have to make monthly repayments on the new loan; instead, the loan amount plus interest is repaid from the sale of your home when you pass away or move into long-term care.

  2. Interest-Only Mortgage: If you have an interest-only mortgage, you can use a lifetime mortgage to pay off the principal at the end of the mortgage term if you don’t have the funds to cover it and wish to stay in your home.

It’s important to remember that while you can clear your existing mortgage with equity release, it will still leave a loan secured against your home. The equity release loan will also accrue interest over time, which can grow to a significant amount.

Before proceeding, it’s advisable to consult with a financial advisor to understand all the implications and ensure that this decision fits into your overall financial plan.

If you think you or a loved one has been mis-sold equity release contact Claimline Legal UK now on 0800 779 7457 or go to to find out more information and start your claim online.

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