Case Study: Using a Lifetime Mortgage to Pass on an Early Inheritance

Mr and Mrs Denholm were both 78 when they began thinking seriously about how and when they wanted to pass wealth on to their family. They were mortgage-free and living in a home worth £1.25 million, with additional investments of £250,000. With total assets of £1.5 million and four adult children, they were in a strong financial position, but they wanted to make a difference to their family while they were still here to see it.

Rather than waiting to pass everything on through their estate, they decided to release equity from their home using a lifetime mortgage. Their goal was simple: gift £100,000 to each of their four children – £400,000 in total. The funds would help their children get onto the property ladder and contribute towards their grandchildren’s school fees. Importantly, they wanted to witness the positive impact of that support.

They arranged a lifetime mortgage at a fixed rate of 6.5%, with interest rolling up over time.

Fast Forward Nine Years

At age 87, nine years after taking out the plan, the original £400,000 loan had grown to approximately £705,028 due to rolled-up interest. Over the same period, assuming average house price growth of 2% per annum, the value of their home increased to around £1,496,250.

After repaying the lifetime mortgage, the remaining property equity stood at roughly £791,222. When combined with their £250,000 of investments, their total estate was approximately £1,041,222.

Considering Inheritance Tax

As a married couple, Mr and Mrs Denholm benefit from a combined Inheritance Tax (IHT) allowance of £650,000. This left approximately £391,222 of their estate potentially subject to IHT at 40%, equating to a tax liability of around £156,489. After tax, the remaining estate passed on would be approximately £884,733.

However, because the £400,000 gift was made more than seven years earlier, it falls outside of their estate under the current 7-year gifting rule (assuming they survive seven years from the date of gift).

The Bigger Picture

By acting when they did, Mr and Mrs Denholm were able to provide £400,000 to their children at a time when it was most valuable – helping with housing and education costs – rather than leaving the full amount tied up in their estate.

In total, the family ultimately benefits from approximately £1,284,733 in combined gifted funds and remaining estate value.

This case highlights how a lifetime mortgage, when used as part of a broader estate planning strategy, can support intergenerational wealth transfer, potentially mitigate Inheritance Tax exposure, and allow families to enjoy the benefits of their legacy sooner rather than later.

Work With Key Partnerships

If you’re supporting clients who are exploring later life lending or estate planning strategies, Key Partnerships can help. Our specialist team works alongside advisers to structure tailored lifetime mortgage solutions that align with wider financial and tax planning objectives.

To discuss a case or explore how we can support your clients, get in touch with the Key Partnerships team today.