Is equity release taxable?

There’s one question that we hear often when it comes to retirement planning: is equity release taxable? Let’s find out where you stand and what you should look out for.

Is equity release taxable?

Whether you choose to take the funds as a lump sum, or drawdown the cash in smaller chunks, you don’t have to pay tax on the funds released from the equity in your home. That can come as a big relief to people who are approaching retirement and searching for ways to enhance their savings pot.

But tax isn’t the only thing to consider when you are contemplating equity release.

What about the interest on equity release?

With equity release you pay interest on the amount you borrow. Typically this is added to the loan and settled once the arrangement terminates. Because this interest is compounded it can add up fast, especially if the rate of interest is high. If you live for many years beyond your equity release, you could find yourself repaying far more than the sum you originally released.

Traditionally this interest is repaid once the borrower dies or moves into long term care accommodation. The lender will sell your home and deduct their share from the proceeds. However, there are now equity release products that allow you to repay some or all of the interest while you are still occupying your property.

Questions about equity release? Ask us anything.

Equity release could impact your benefits entitlement

A key point to note is that triggering equity release could impact your entitlement to state benefits. That’s because the money generated by your equity release could push you over the allowable income or capital thresholds that are used to determine whether you qualify for benefits.

The affected benefits are those that are means-tested. That includes pension and savings credit, council tax reduction, income support, care funding, income support and jobseekers allowance.

Equity release: a small part of a big picture

The conversation surrounding equity release includes far more than your tax liabilities. With many different options to consider, making the wrong decisions can be costly. Given that equity release is most likely part of your retirement planning, failing to study your options wisely isn’t worth the risk.

That’s why it’s always best to talk to an independent financial adviser before committing yourself. As independent wealth management experts – not to mention members of the Equity Release Council – Prydis is uniquely placed to talk you through your options and help you find the best equity release products for your specific circumstances.

It only takes a few seconds to find out more and start the conversation.

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