A lifetime mortgage — the most common form of equity release — is a loan secured against your home. You retain full ownership. There are no mandatory monthly repayments; instead, interest rolls up over time and the loan is repaid when the property is eventually sold. If you’d like a fuller explanation of what equity release is, our guide covers the basics clearly.
If you have an outstanding mortgage, it must be repaid from the released funds on completion day. This is a lender requirement, not optional. The amount left after clearing your mortgage is your net release — and that’s the sum available to gift. For example, if you release £80,000 and have a £30,000 mortgage balance, your net release is £50,000.
Once the application completes — typically within 6–8 weeks — the money lands in your bank account. From that point, it’s yours. There’s no restriction on how you use it, including gifting it directly to a grandchild.
The transfer from your account to your grandchild’s is a straightforward bank transfer. For IHT purposes (more on that in the next section), it’s worth documenting the gift in writing — a simple letter or gift letter noting the amount, date, and recipient is sufficient.
When you make a gift from your own funds, it’s known as a Potentially Exempt Transfer (PET). If you survive for seven years after making the gift, it falls completely outside your estate for IHT purposes. If you die within seven years, it may be brought back into your estate (on a sliding scale known as taper relief). The practical implication: the earlier you make the gift, the more time the seven-year clock has to run.
HMRC allows each person to gift up to £3,000 per year completely free of IHT, regardless of the seven-year rule. You can also carry forward one unused year’s allowance, giving a potential £6,000 in a single year. Gifts for a grandchild’s wedding (up to £2,500 per grandparent) also qualify for a separate exemption.
Separately from any gift, the outstanding loan — including rolled-up interest — sits as a debt against your estate. When the property is sold, the loan is repaid before anything passes to beneficiaries. This means equity release can reduce your estate’s IHT exposure in its own right, quite apart from any gifting.
Before gifting from equity release, there are four things that can catch people out if they're not planned for in advance.
HMRC takes a dim view of gifts where the giver continues to benefit. The most common trap: gifting money to a child or grandchild who lives in your home, without them paying market rent. If HMRC deems the gift to have a “retained benefit,” it remains in your estate for IHT purposes regardless of the seven-year rule. If your grandchild lives with you, take tax advice before gifting.
If you release equity but don’t gift the money promptly — leaving it sitting in a savings account — it remains part of your estate. It may also affect entitlement to means-tested benefits such as Pension Credit. The IHT seven-year clock only starts when the gift is actually made, not when the equity is released.
For the seven-year rule to work in your favour, the gift needs to be made as early as possible. A grandparent who releases equity at 75 and gifts immediately has a reasonable chance of surviving seven years. Waiting two years before making the gift reduces that window. This is worth discussing with your adviser alongside your age and health.
A written record — even a simple letter — confirming the amount, date, recipient, and that the gift is unconditional protects everyone. It gives your executor clarity and provides evidence for HMRC if questions arise.
There's no universal answer — which is exactly why regulated advice matters. But these two profiles give a useful starting point.
If you’re weighing equity release against selling and moving to a smaller property, see how downsizing compares — it’s a genuinely useful alternative for some people.
Yes — and it’s one of the most common reasons people come to us. Once equity release funds land in your account, there are no restrictions on how you use them. You can transfer money directly to a grandchild as a gift, whether that’s a house deposit, a lump sum for education, or support at a meaningful life moment. The one practical step to be aware of: if you have an outstanding mortgage, it must be cleared from the released funds first. The amount left after that clearance is your net release — and that’s what’s available to gift. Drawdown plans can also be useful if the gifting need is phased rather than immediate.
Potentially — but through two separate mechanisms working together, not one. First, the gift itself: once you’ve transferred money to a grandchild, it starts the seven-year IHT clock. If you survive seven years from the date of the gift, that money is fully outside your estate. Second, the equity release loan: the outstanding balance — including rolled-up interest — is a debt against your estate. When the property is sold, the loan is repaid before anything passes to beneficiaries, reducing the net estate value for IHT purposes. The combined effect of a gift and a loan can meaningfully reduce an IHT liability, but the interaction is nuanced. Our guide to equity release and inheritance tax explains the IHT mechanics in full.
The amount you can release depends primarily on your age and your property’s value. As a general rule of thumb, lenders typically allow you to release between 20% and 50% of your property’s value, with older applicants able to access a higher percentage. Health and lifestyle factors can also increase the amount available through what’s known as an enhanced plan. Crucially, any existing mortgage balance is deducted from the gross release figure — so the net amount available to gift may be lower than the headline figure. For a full picture of how much you could access, our guide to how much equity you can release walks through the calculation in detail.
Your estate is reduced in two ways simultaneously. The gift reduces the value of your estate directly — and if you survive seven years, it falls outside your estate for IHT entirely. The equity release loan reduces your estate separately: when the property is sold, the outstanding balance (original loan plus rolled-up interest) is repaid first, and only what remains passes to your beneficiaries. It’s worth modelling both impacts together, not in isolation. One reassurance worth noting: the No Negative Equity Guarantee means your estate will never owe more than the property’s sale value — your family won’t inherit a shortfall.
It depends entirely on your grandchild’s timeline. If the need is immediate — a house deposit that needs to be in place for a specific purchase — a lump sum is the right choice. The full amount is available from day one. If the need is phased — supporting a grandchild through three years of university, or funding a business in stages — drawdown is usually better. With drawdown, you only pay interest on what you’ve actually drawn, which reduces the long-term roll-up cost significantly. Both approaches are valid; the right one depends on when and how the money is needed. Your adviser will help you model both.
Practically and emotionally, yes — and we’d always encourage it. From a practical standpoint, your executor needs to know about the equity release plan when the time comes, so the lender can be notified and the property sale managed within the required timeframe. From an emotional standpoint, involving your family in the conversation — including the grandchild receiving the gift — avoids misunderstandings about what the estate will look like in the future. At Access Equity Release, loved ones are always welcome in our advice meetings. There’s no obligation to bring anyone, but many families find it helpful to hear the detail together, at their own pace.
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