Inheritance tax can seem complicated. It’s paid on the total value of your estate, which is calculated by adding up all your assets (such as your home, and any savings or investments you have) and taking off any loans or debts you owe. Equity release affects inheritance tax because it’s included in the amount you owe. Your heirs will have to pay 40% of anything over a set allowance, which at the moment stands at £325,000 (for 2022-23), plus up to £175,000 for a property that was your main residence.
Gifting money to family members before you die will potentially reduce the value of your estate, and could bring it below those all-important allowance thresholds. The catch is that you have to live for seven years after making large gifts for the money not to be included as part of your estate. It’s common to send money as gifts to family to celebrate life’s milestones though – we’ll talk about how much you can gift next.