Lifetime Mortgage and Your Will UK: How Equity Release Affects Inheritance
Updated 31 May 2026 · 9 min read · Estate Planning & Property
Equity release is one of the most significant financial decisions a homeowner can make — and it has direct consequences for what your family inherits and how your estate is taxed. Understanding how a lifetime mortgage interacts with your will, the residence nil rate band, and your IHT position is essential before you take out equity release, and important to review regularly if you already have one.
How a Lifetime Mortgage Works
A lifetime mortgage is a loan secured against your home. The key features:
- You borrow a lump sum (or drawdown facility) against the equity in your home.
- No monthly repayments are required — interest compounds and is added to the loan balance each year.
- You retain ownership and the right to live in the property for life (or until moving to long-term care).
- The loan is repaid from the sale of the property when you die or move into care.
- Equity Release Council-regulated products include a no negative equity guarantee — your estate can never owe more than the property is worth.
Compound interest on a lifetime mortgage grows quickly — at 5% per annum, a £100,000 loan becomes approximately £163,000 after 10 years, £265,000 after 20 years. This erosion of equity is the central trade-off against the income or lump sum received.
What Your Estate Owes on Death
When the last borrower dies, the outstanding loan (including all rolled-up interest) must be repaid, typically from the sale of the property. The sequence:
- Property is sold by the executor (or personal representative).
- Lifetime mortgage lender is repaid in full from the proceeds.
- Remaining equity (if any) passes to the estate and is distributed per the will or intestacy.
Beneficiaries receive the net equity — the property value minus the outstanding lifetime mortgage — not the gross property value. The IHT estate includes the gross property value as an asset and the outstanding lifetime mortgage as a liability; the two net off for IHT purposes.
The RNRB Risk with Large Equity Release
The residence nil rate band (RNRB) is calculated on the net value of the qualifying residential property — the property value minus any mortgage secured on it. For a heavily equity-released property, this can restrict or eliminate the RNRB:
| Scenario | Property value | Lifetime mortgage | Net property value | RNRB available |
|---|---|---|---|---|
| No equity release | £400,000 | £0 | £400,000 | £175,000 (full) |
| Moderate equity release | £400,000 | £150,000 | £250,000 | £175,000 (full — net still exceeds RNRB) |
| Heavy equity release | £400,000 | £320,000 | £80,000 | £80,000 (restricted — £95,000 lost) |
The IHT impact of losing part of the RNRB is significant — each £1 of RNRB lost increases the IHT bill by 40p. Losing the full £175,000 RNRB costs the estate £70,000 in additional IHT.
What Your Will Should Say
Your will does not need to mention the lifetime mortgage — it is automatically repaid from the property sale and the net proceeds pass to the estate. However, avoid leaving the equity-released property as a specific bequest to a named person (e.g. “I leave my house at [address] to my daughter”): the beneficiary would take the property subject to the mortgage, creating a potential obligation to repay a six-figure loan from personal funds. Instead, leave the property in the residuary estate so that the mortgage is repaid from the sale before distribution. If a family member is currently living in the property, a life interest trust — giving them the right to live there for their lifetime, with the remainder passing to children on their death — can work alongside a lifetime mortgage, but requires specialist advice to ensure the lender consents to the arrangement.
FAQs
What is a lifetime mortgage and how is it repaid?
A lifetime mortgage is a type of equity release loan secured against the borrower's home. The borrower retains ownership and can live in the property for life (or until they move into long-term care). Unlike a conventional mortgage, there is typically no requirement to make monthly repayments during the borrower's lifetime — instead, interest rolls up and is added to the loan balance. The full amount — the original loan plus accumulated compound interest — is repaid when the borrower dies or moves into long-term care, typically from the sale of the property. Modern lifetime mortgage products regulated by the Equity Release Council include a 'no negative equity guarantee' — the borrower (or their estate) will never owe more than the property is worth, even if compound interest has exceeded the property value. The estate is responsible for repaying the loan from the property proceeds; any remaining equity passes to the beneficiaries under the will or intestacy.
How does a lifetime mortgage affect what my beneficiaries inherit?
A lifetime mortgage reduces the net equity that beneficiaries receive from the property. The larger the loan and the longer the interest has been rolling up, the less residual equity remains. For example: a property worth £500,000 with an outstanding lifetime mortgage of £200,000 (original loan plus rolled-up interest) leaves only £300,000 net equity for beneficiaries after repaying the lender. This net equity — not the property's full value — is what passes to beneficiaries. The gross estate value (for IHT purposes) is the property's open market value; the lifetime mortgage debt is deducted in calculating the net estate for IHT. So: property worth £500,000 with a £200,000 lifetime mortgage gives an IHT net estate contribution of £300,000. The HMRC 'restriction on deduction' rules (Finance Act 2013) restrict the IHT deduction for certain loans secured on the property if the proceeds were used in particular ways (for example, if the borrowing was used to buy assets that are exempt from IHT) — specialist advice is needed for large equity release.
Does a lifetime mortgage affect the residence nil rate band (RNRB)?
Potentially yes. The residence nil rate band is available where the deceased's estate includes a qualifying residential property (or the proceeds of a downsized property) that is left to direct descendants. The RNRB is capped at the lower of: (1) £175,000 (the standard RNRB); or (2) the net value of the qualifying residential property in the estate — i.e., the property value minus any mortgage or charge secured on it. Where a lifetime mortgage is secured on the property, the net value of the property for RNRB purposes is reduced by the outstanding loan. Example: property worth £500,000, lifetime mortgage of £300,000. Net property value in estate = £200,000. RNRB is therefore capped at £200,000 — but since the maximum RNRB is £175,000, the cap does not bite in this example. However, if the lifetime mortgage had grown to, say, £380,000, the net property value would be £120,000, restricting the RNRB to £120,000 and losing £55,000 of RNRB. This is a significant planning risk for those with large equity release balances in high-value properties.
What does my will need to say if I have a lifetime mortgage?
Your will does not need to mention the lifetime mortgage by name — the loan is automatically repaid from the property proceeds before any distribution to beneficiaries, regardless of what the will says. However, there are several planning considerations for your will: (1) Beneficiaries should understand that they will receive the net equity after the loan repayment, not the full property value. A letter of wishes can explain this. (2) If you are leaving the property to a specific beneficiary (a specific bequest), that beneficiary takes the property subject to the mortgage — they must either repay the lifetime mortgage from their own funds or agree to sell the property. Most specific bequests of equity release properties should be made as residuary gifts (or with a clear direction as to how the loan is to be repaid) to avoid creating an impractical obligation. (3) If you share the property with a partner who is also on the lifetime mortgage, neither party will owe repayment while the other is alive — the loan is repaid only when the last surviving borrower dies or moves into care. Your will should anticipate that the property may still have a lifetime mortgage outstanding at your death.
Can I change my will or move home after taking out a lifetime mortgage?
Yes to both. Having a lifetime mortgage does not restrict your ability to update your will — you should review and update your will regularly to ensure it remains current, particularly if circumstances change (marriage, divorce, new children, death of a beneficiary). Moving home with a lifetime mortgage is also possible — most Equity Release Council-compliant products allow you to transfer (port) the mortgage to a new qualifying property, subject to the new property meeting the lender's criteria. Downsizing is more complex: if the new property has insufficient value to support the existing loan balance, you may need to repay part of the loan. The Equity Release Council's standards include a 'right to move' to a suitable alternative property, which protects borrowers who wish to downsize. Update your will after any house move to ensure the will correctly reflects the changed property situation.
Is a lifetime mortgage a good way to reduce inheritance tax?
A lifetime mortgage reduces the value of the property in the estate (because the loan is a liability deductible from the estate for IHT), which in turn reduces the IHT estate. However, using equity release specifically to reduce IHT is a complex strategy with significant trade-offs: (1) the loan costs money (rolled-up interest, often at rates of 4–6% per annum compounding) which reduces what the family receives; (2) the RNRB may be restricted as described above; (3) HMRC may challenge the deductibility of the loan in certain circumstances under the 'restriction on deductions' rules if the money released is used to buy IHT-exempt assets; (4) the Equity Release Council's no-negative-equity guarantee means the estate cannot lose money, but it can significantly reduce the family's net inheritance. Equity release is often appropriate for retirement income, home improvements, or care costs — using it primarily for IHT planning requires specialist advice and careful comparison with alternatives such as lifetime gifting, pension planning, or life insurance in trust.
Keep Your Will Updated After Equity Release
Taking out a lifetime mortgage is a major financial event that should trigger a review of your will. Make sure your will correctly reflects how the property should be dealt with and who receives the net equity. WillSafe’s DIY will kit for England and Wales makes it straightforward to update your will.
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