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How Equity Release Could Help Mitigate Inheritance Tax: A Growing Opportunity for Advisers

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How Equity Release Could Help Mitigate Inheritance Tax: A Growing Opportunity for Advisers

Between April and September this tax year, Inheritance Tax (IHT) receipts reached £4.4 billion – up by £100 million on the same period last year, according to the latest HMRC data. It’s a clear signal that more estates are falling into the IHT net, driven by rising property values and frozen tax thresholds.

For financial and mortgage advisers, this presents both a challenge and an opportunity. Many clients are unaware that their estate could be liable for IHT, and fewer still understand how tools like equity release could form part of a wider strategy to mitigate the impact.

The Rising IHT Burden

The nil-rate band has been frozen at £325,000 since 2009, and the residence nil-rate band at £175,000. Inflation and rising house prices mean more families are being caught by “fiscal drag.” Even relatively modest estates are now facing potential tax bills of 40% on anything above these thresholds.

Advisers are uniquely placed to help clients think strategically, not just about passing on wealth efficiently, but also about maintaining quality of life and financial flexibility in later life.

Where Equity Release Fits In

Equity release, particularly lifetime mortgages, allows clients to access the wealth tied up in their property while continuing to live in it. When structured carefully, it can reduce the value of an estate for IHT purposes, because the loan (plus rolled-up interest) is repaid from the estate when the property is sold after death.

Some of the ways that equity release can support IHT planning include:

  • Reducing estate value: By releasing equity, clients can bring their estate below the taxable threshold.
  • Gifting wealth earlier: Released funds can be gifted to family members or used to support them financially. If the donor survives for seven years, these gifts are typically outside of the estate for IHT purposes.
  • Funding trusts or investments: Some clients may use released funds to create trusts or invest in IHT-efficient vehicles, as part of broader estate planning.

Of course, equity release isn’t right for everyone. It should always be considered as part of a holistic financial plan, ideally involving collaboration between mortgage, financial, and tax specialists.

The Role of Professional Collaboration

This is where working with Key Partnerships can make a real difference.

At Key Partnerships, we work with financial and mortgage advisers to help their clients explore later life lending options safely and responsibly. Advisers who refer clients can access our expertise in equity release advice, ensuring their clients receive high-quality, FCA-regulated guidance while retaining control of the overall relationship.

By working with us, advisers can:

  • Broaden their service offering without needing to become equity release experts themselves.
  • Provide a joined-up client experience across wealth management, estate planning, and lending.
  • Create additional revenue opportunities while delivering tangible value to clients.

A Timely Conversation

With IHT receipts at record levels and thresholds frozen until at least 2028, now is the time to start these conversations with clients. Many homeowners have significant housing wealth but limited liquid assets, making equity release a potentially powerful tool for both funding later life and reducing IHT exposure.

By partnering with Key Partnerships, advisers can ensure clients receive trusted, specialist advice while strengthening their own proposition in a changing market.

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