Inheritance tax has become an unavoidable concern for many families in the UK. The nil-rate band has remained frozen while property prices have continued to climb, dragging more estates into the 40% tax bracket each year. For many, the family home represents the largest source of wealth and the biggest challenge when planning for inheritance tax. The question becomes: how do you protect family wealth tied up in bricks and mortar without selling the property during your lifetime?
One increasingly popular answer is the lifetime mortgage. These products, the most common form of equity release, allow homeowners to borrow against the value of their home while retaining the right to live there for life. When used thoughtfully, and with professional coordination, a lifetime mortgage can form part of an inheritance tax planning strategy. The key lies in collaboration with solicitors to ensure the plan is watertight and aligned with broader estate planning goals.
The current tax framework allows individuals to pass on up to £325,000 tax free under the nil-rate band, with an additional £175,000 residence nil-rate band where the family home is passed to direct descendants. For couples, this can combine to £1 million. Yet rising property values mean that many family homes in London, the South East, and other strong markets already exceed these limits. Families that once assumed inheritance tax would never apply to them are finding themselves faced with potentially large bills.
The result is that inheritance tax planning has become mainstream. It is no longer the preserve of the ultra-wealthy; it is a practical necessity for many middle-class families whose homes have appreciated in value. This environment has opened the door for more creative strategies that make use of financial tools like lifetime mortgages.
A lifetime mortgage is secured against the property and does not usually require monthly repayments. Instead, the capital and interest are settled when the borrower dies or moves into long-term care, typically through the sale of the home. From an inheritance tax perspective, this borrowing reduces the net value of the estate. Because the mortgage is a legally binding debt, it is deducted before inheritance tax is calculated.
The funds released can then be used in different ways. Some homeowners choose to gift the money to children or grandchildren immediately. If they survive seven years after making the gift, the money is removed from their estate entirely under the “seven-year rule.” Others prefer to retain the cash to fund their own retirement, but even this can be effective in reducing the final estate value and therefore the tax due.
Inheritance tax planning is never straightforward. There are complex rules around gifting, debt, and estate valuation, and misunderstandings can lead to expensive mistakes. This is where solicitor coordination becomes essential.
Solicitors play a central role in ensuring that the debt created by a lifetime mortgage is recorded correctly so that it is deductible from the estate. They also oversee the legal aspects of gifting, making sure transfers are properly documented and compliant with HMRC rules. Most importantly, they integrate the mortgage into wider estate planning, aligning it with wills, trusts, and other arrangements so that the family has a clear, consistent strategy.
Without solicitor involvement, families risk confusion later on. Disputes between beneficiaries, uncertainty about whether a debt is deductible, or invalid gifting arrangements can all undermine the intended outcome. By working closely with legal professionals, borrowers ensure that their use of a lifetime mortgage genuinely supports their inheritance tax planning goals rather than complicating them.
The benefits of this approach are clear: reducing the taxable estate, enabling lifetime gifting, and creating flexibility without selling the home. However, borrowers must also weigh the risks. Interest on a lifetime mortgage can compound quickly if left unchecked. While modern products often allow voluntary repayments to mitigate this, the potential erosion of the estate cannot be ignored.
There is also the question of financial security. Using a lifetime mortgage to reduce inheritance tax only makes sense if the homeowner retains enough resources to cover their own needs, including care costs later in life. A poorly structured plan could leave the borrower cash-short in the future. These are not theoretical concerns, which is why advice and solicitor oversight are non-negotiable.
Lifetime mortgages are most effective when integrated into a broader inheritance tax plan. They can be used alongside whole of life insurance, which provides a guaranteed payout designed to cover the tax bill. They may complement trust structures that control how wealth is passed down. They can also fund lifetime gifts that help the next generation today while reducing the estate’s taxable value tomorrow.
In our recent piece on inheritance tax planning with whole of life policies, we explained how insurance can create certainty around future liabilities. When combined with a lifetime mortgage, families have a powerful toolkit that addresses both liquidity and legacy. The solicitor’s role is to tie these threads together, ensuring that each element reinforces the others rather than working at cross purposes.
The reason lifetime mortgages are now viable for inheritance tax planning is that the market has changed. In the past, equity release carried serious risks. Today, FCA regulation and the safeguards of the Equity Release Council — such as the no-negative-equity guarantee and mandatory independent legal advice — ensure that borrowers are protected.
Nevertheless, responsible use remains key. Lifetime mortgages are not suitable for everyone, and they should never be entered into without full consideration of alternatives. For some, downsizing or a retirement interest-only mortgage will be a better fit. What matters is that families understand the options and make choices in line with both financial realities and personal goals.
Lifetime mortgages can be a powerful tool in inheritance tax planning. By reducing the taxable estate and facilitating lifetime gifting, they offer a way for families to pass on more wealth to future generations. But they are not a one-size-fits-all solution. To be effective, they must be integrated into a broader estate plan, carefully structured, and supported by solicitor coordination.
In 2025, homeowners have more tools than ever before to manage inheritance tax responsibly. With expert advice and professional oversight, lifetime mortgages can be used as part of a strategy that balances financial security today with legacy planning for tomorrow.
About the Author
Wesley Ranger is the Founder and Director of Willow Private Finance, where he also serves as a senior mortgage and protection specialist. With over 20 years’ experience, Wesley has helped clients structure their property finance and estate planning strategies.
He works closely with solicitors to ensure that later-life lending solutions, including lifetime mortgages, support long-term goals in a responsible and compliant way.
Important Notice
Equity release and lifetime mortgages are regulated financial products. They may not be suitable for all borrowers and will reduce the value of your estate. Taking out a plan may affect your entitlement to means-tested benefits. Lifetime gifting is subject to tax rules, including the seven-year rule, and should always be coordinated with professional legal and financial advice. Interest can accumulate significantly unless payments are made, which may increase the balance owed. Independent, regulated advice is mandatory before entering into any equity release arrangement. This article is for information purposes only and does not constitute personalised financial advice.
