Reading time: 6 mins
For many families, the home is their largest asset. In retirement, that wealth can feel locked away. You may need cash for care, home improvements or helping children onto the property ladder.
There are two main routes. You can sell and move somewhere smaller. Or you can stay put and borrow against your home. Each has real tax, lifestyle and emotional consequences.
This guide sets out the key trade-offs so you can have a better-informed conversation with your advisers.
Later-life lending is growing fast
Borrowing against property in retirement is no longer unusual. According to the Equity Release Council, total annual lending rose from £2.3 billion in 2024 to £2.57 billion in 2025. The average release reached £123,174 in the last quarter of 2025, up 5.7% on the year before.
The regulator is paying close attention too. The Financial Conduct Authority is running a market study into lifetime and retirement interest-only (RIO) mortgages. It plans to publish interim findings in Q4 2026. Rules and products may therefore change in the near future.
Option 1: Downsizing
The tax picture
Selling your main home is usually free of Capital Gains Tax under Private Residence Relief. The bigger cost often comes when you buy your next home.
In England and Northern Ireland, standard Stamp Duty Land Tax is 0% on the first £125,000, 2% up to £250,000, 5% up to £925,000, 10% up to £1.5 million and 12% above that. On a £500,000 purchase, that works out at £15,000. Add estate agent, legal and removal costs, and the “released” cash can shrink noticeably.
Downsizing can also affect inheritance tax. The residence nil-rate band is worth up to £175,000 per person and is fixed until April 2031. It sits on top of the main £325,000 nil-rate band. Together, a married couple can reach a combined £1 million allowance.
The good news is that downsizing does not have to cost you this allowance. The downsizing addition can protect it where you sold or moved to a smaller home on or after 8 July 2015, provided assets of equivalent value go to direct descendants. However, the calculation is complex, and executors must claim it on form IHT435. Good record-keeping at the time of sale makes their job much easier.
A new factor for prime homes
Owners of high-value homes in England face a new annual charge. From April 2028, the High Value Council Tax Surcharge will add £2,500 to £7,500 a year for properties valued at £2 million or more. The government consulted on the design until 14 July 2026 but has not yet published the outcome.
For some owners near the threshold, this may tip the balance towards selling.
Lifestyle and emotional trade-offs
A smaller home can mean lower bills and less upkeep. Moving closer to family, shops or healthcare can make daily life easier.
Yet the family home often holds decades of memories. Leaving a garden, neighbours or a local community can be harder than expected. Moving is also physically and mentally demanding, especially later in life.
Option 2: Equity release and later-life mortgages
How it works
The most common form of equity release is the lifetime mortgage. You borrow against your home without making repayments unless you choose to. The loan and interest are repaid when you die or move into long-term care.
Plans from Equity Release Council members include important protections. These include a no-negative-equity guarantee and the right to remain in your home for life.
A retirement interest-only (RIO) mortgage works differently. You pay the monthly interest, and the loan is usually repaid when the home is sold. This suits people with reliable retirement income who want to limit debt growth.
Many modern plans are more flexible than their predecessors. Some allow voluntary repayments or staged “drawdown” borrowing. With drawdown, you take only what you need, and each withdrawal is charged at the rate available at the time.
The cost of compound interest
The key risk is how quickly unpaid interest builds up. The Equity Release Council’s Summer 2025 report put the average advertised rate at 7.24%. At a 7% rate with no payments, the amount owed roughly doubles after 10 years.
To put that in context, £100,000 borrowed at 7.24% could grow to around £405,000 after 20 years. That reduces what you leave to your family.
There are also set-up costs. Solicitor fees typically range from around £650 to over £1,000, and some advisers charge a separate fee.
Tax and benefit points
Money released from your home is not treated as income. However, releasing equity could affect means-tested benefits, and you must tell the DWP or your council if you receive them.
Borrowing can also reduce the value of your estate for inheritance tax. This may sound attractive, but it should never be the main reason to borrow. Interest costs can easily outweigh any tax saving.
Lifestyle and emotional trade-offs
Staying put keeps your routines, your community and your memories intact. For many people, that is worth a great deal.
The downside is that the house stays the same while your needs may change. A large property can become harder to manage with age. Some families also feel uneasy about debt growing against the family home.
Why the wider picture matters
Property decisions should not be made in isolation. From 6 April 2027, most unused defined contribution pension pots will fall within the scope of inheritance tax. This may change which assets you draw on first in retirement.
The £2 million taper threshold for the residence nil-rate band is also frozen until April 2031. As property values rise, more estates may lose some or all of this allowance.
Downsizing vs equity release: quick comparison
| Downsizing | Equity release / later-life mortgage | |
|---|---|---|
| Stay in your home? | No | Yes |
| Upfront costs | Stamp Duty, agent and legal fees | Legal, valuation and advice fees |
| Ongoing cost | Lower running costs likely | Compound interest (lifetime) or monthly interest (RIO) |
| Inheritance tax | Downsizing addition may protect allowance | Debt reduces estate value |
| Effect on family inheritance | Depends on use of proceeds | Can reduce it significantly |
Frequently asked questions
Will I lose my residence nil-rate band if I downsize?
Not necessarily. The downsizing addition may preserve it if the conditions are met.
Can I move house with equity release?
Plans from Equity Release Council members allow you to move to another suitable property, subject to the lender’s criteria.
Is equity release regulated?
Yes. Lifetime and RIO mortgages are regulated by the FCA, and advice is required.
Next steps
There is no single right answer. The best choice depends on your income, health, family wishes and estate plans.
Before deciding, speak to a regulated equity release adviser and a tax professional. Involving your family early can also avoid surprises later.
Jermyn Taylor Private Client Services can help you understand the inheritance tax, estate and wider tax implications of each option. Please get in touch to arrange a free initial conversation.
This article is for general information only and does not constitute financial, tax or legal advice. Equity release products must be arranged through a regulated adviser. Figures are correct at the time of writing (September 2026) and may change.
No responses yet