Lifetime Mortgage Myth 7: You Have to Pay Tax on the Money Released

A common myth about lifetime mortgages is this:

“You have to pay tax on the money you release.”

This misconception can put people off exploring equity release as a later life funding option, especially those already cautious about their tax position in retirement.

Let’s clear this up once and for all.

Is the Money from a Lifetime Mortgage Taxable?

No – the money you release from a lifetime mortgage is tax-free.

That’s because a lifetime mortgage is a loan secured against your home, not income.

You’re borrowing money from a lender, and like most loans, it’s not classed as taxable income by HMRC.

Whether you use the funds to clear an existing mortgage, gift money to family, pay for home improvements, or simply boost your retirement lifestyle—the release itself won’t trigger an income tax bill.

So Why Is There Confusion?

This myth usually stems from what happens after the money is released.

While taking the money isn’t taxable, what you do with it can have tax implications. For example:

• Gifting: Large gifts could fall under inheritance tax rules if you pass away within 7 years of making the gift.
• Investing: If you invest the money, any gains or interest earned could be subject to capital gains or income tax.
• State Benefits: The extra funds could affect eligibility for means-tested benefits.

This is why it’s so important to work with a specialist adviser—and often, to bring in your accountant or financial planner too. They can help structure things correctly and avoid unwanted consequences.

Real-World Example

Let’s say you release £100,000 using a lifetime mortgage:

• You use £70,000 to repay an interest-only mortgage that’s coming to the end of its term.
• You gift £20,000 to your daughter to help her buy her first home.
• You keep £10,000 in a savings account for emergencies.

None of this is taxable on release. But your daughter may need to consider inheritance tax planning, and any interest earned on your savings could be taxable depending on your wider finances.

It’s not about the release being taxed—it’s about good planning afterwards.

The Takeaway

The money you release from a lifetime mortgage is tax-free.

But depending on how you use the funds, there could be knock-on tax or benefit implications. That’s not a reason to avoid releasing equity—but it is a reason to get holistic advice.

When done properly, lifetime mortgages can offer a flexible and strategic way to access the wealth in your home—without triggering unnecessary tax bills or risking your long-term security.

Final Thoughts

So, is this myth true?

No. You do not pay tax on the money you release with a lifetime mortgage.

However, getting it wrong could lead to other tax issues. So, the smart move is to get coordinated advice from a mortgage specialist and a financial planner. Together, they can help you unlock your home’s value in a way that suits your lifestyle, family, and financial goals.

Risk Warning:
This is a lifetime mortgage. To understand the features and risks, please ask for a personalised illustration. Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice.

Regulatory Disclosure:
Symmonds de Lacey is a trading name of Easy Street Financial Services Limited which is authorised and regulated by the Financial Conduct Authority. Easy Street Financial Services Limited is a company registered in England and Wales with company number 6430453. The registered office address is Basepoint, 377-399 London Road, Camberley, Surrey, GU15 3HL.

Information correct at time of writing – June 2025.