How does equity release affect benefits?

Could a cash boost from your home impact your benefits?

When releasing some of the money from the value of your home with equity release, it’s essential you weigh up all the pros and cons. Sometimes the extra cash you unlock can affect your entitlement to some means-tested benefits. If you depend on state benefits or perhaps funding for care, you’ll need to consider your options carefully.

To help you explore issues around equity release and benefits, we’ve compiled the following information:

• How does equity release work?
• Does equity release affect benefits?
• How does equity release affect means-tested benefits
• How does equity release affect state benefits such as Universal Credit?
• Does equity release affect your pension?
• Does equity release affect pension credit?
• Can equity release affect council tax reduction?
• Could equity release affect funding for care?
• Will equity release affect my benefits?

We hope this guide will help you understand some of the issues around equity release and benefits. This guide is for information purposes however, and doesn’t offer advice. Please talk to Citizens Advice or appropriate government agencies for further help to assess whether releasing equity might affect your entitlement to benefits.

Our selected advisers are also available to discuss your circumstances and offer advice on equity release, and help you find suitable plans. Just call us on 0800 096 2215 or request a call back for a no-obligation appointment. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.

How does equity release work?

Equity release is a way for homeowners aged 55+ to access some of the tax-free cash from their home to spend however they want.  

Whilst there are many options and features to choose from, the two main types of equity release plan are lifetime mortgages and home reversion plans. 

Unless you choose an interest-only equity release plan to prevent interest accruing on your plan, you won’t have to make any monthly repayments. This is because the loan plus the accrued interest is paid off when your home is sold, usually when you pass away or move into long-term care. 

You can choose to take all of your available money as a single lump sum, or you can select a drawdown equity release plan. A drawdown plan allows you to unlock smaller amounts of money as and when you need to. This can save a significant amount of interest over time as the interest is only applied when you make each withdrawal.

A drawdown plan also ensures that you don’t have more cash sitting in your bank account than you currently need. This could be helpful for customers looking to keep any savings below the means-tested benefits threshold.

Please do bear in mind that arranging an equity release plan on your home is a large and typically lifelong financial commitment, so make sure you consider all the pros and cons of equity release. We also encourage you to involve your family members, as your decision is likely to affect them. By its very nature, equity release reduces the value of your estate and the amount of inheritance you leave. 

Does equity release affect benefits?

When you unlock your equity, the money is paid into your bank account for you to spend as and when you wish. However, having a large cash lump sum in your account means that your entitlement to some means-tested benefits may change.

Means-tested benefits 

Means-tested benefits is the name for financial support given by the State to those living on a very low income. To receive these benefits, you have to be able to prove that your income and capital – your savings and investments – fall below the threshold level. 

Examples of means-tested benefits include: Universal Credit, Pension Credit and council funding for care. 

Non means-tested benefits

For State benefits that are not means-tested, your income or savings are not taken into account. 

Examples of benefits that are not means-tested include: the State Pension, Carer’s Allowance, Personal Independence Payment (PIP) and Attendance Allowance.

Whether equity release will affect your entitlement to means-tested benefits will depend on which benefits you are receiving (or may receive in the future) and how much you want to release.  

How does equity release affect means-tested benefits?

The money you have in the bank from equity release is likely to count towards your income or savings, should there be a check or review of your entitlement to means-tested benefits. This is because the government and local authorities need to ensure that State benefits are only given to those on the lowest incomes, with access to little or no savings. 

Asking for evidence of a low income and how much you have in savings will often be central to any means test or assessment they carry out. Your current income and savings will indicate if you are eligible for State financial support.

How does equity release affect State benefits such as Universal Credit?

The current criteria for Universal Credit is that you have to have less than £16,000 in savings to qualify. If you unlock a large cash lump sum with equity release then you may not be able to claim Universal Credit. 

However, many equity release plans allow you to unlock as little as £10,000 from your home. So your entitlement to Universal Credit may not necessarily change when you take out an equity release plan.

Does equity release affect your pension?

Having an equity release plan will not affect your State Pension income. The State Pension is paid to everyone who qualifies once they reach their qualifying age, regardless of their income or savings. 

The full State Pension is currently worth £185.12 per week, although some people will receive less or even nothing if they have not paid enough National Insurance contributions. If you don’t already receive the State Pension, check your state pension forecast here to find out your projected income and when you will receive it.

Does equity release affect Pension Credit?

An important issue when it comes to equity release and benefits is the potential effect on how much Pension Credit you receive. The way in which your capital (including money from an equity release plan) counts as income makes this means-tested benefit a little more complex. 

What is Pension Credit?

Pension Credit is a means-tested top-up to the State Pension for pensioners living in England, Scotland or Wales on low incomes.

If you are eligible for Pension Credit then you also qualify for other benefits including automatic cold weather payments, a free TV Licence, Council Tax Reduction and help with NHS dental treatment and glasses. 

According to MoneySavingExpert, over three million households are eligible for pension credit, yet they estimate more than 800,000 are missing out. Find out if you are eligible with the government’s online pension credit eligibility calculator here. 

Could my Pension Credit income be affected by equity release?

You can have £10,000 or less in savings and investments without having any effect on your Pension Credit. 

If you have more than £10,000 saved, then every £500 over £10,000 counts as £1 income a week. This means that if you have £15,000 in savings, this counts as £10 income a week.

Therefore, if you release £10,000 from your home and have no savings put away, equity release may not affect your Pension Credit. However, if you were to unlock more or have some savings already, then things might be different.

Can equity release affect Council Tax reduction?

Pensioners on a low income who are eligible for Pension Credit may also be entitled to pay a lower rate of Council Tax. There are also various support schemes in place for pensioners on low incomes struggling to pay their council tax.

Each local authority has their own Council Tax Support scheme – you can check your own eligibility here. But generally, if you are of State Pension age and have a low income and less than £16,000 in savings then you may qualify for a Council Tax reduction. If you claim the ‘Guarantee Credit’ part of Pension Credit then you can have over £16,000 in savings and still qualify for a reduction or exemption.

Simply having an equity release plan doesn’t prevent you from qualifying for a Council Tax reduction. However, if the amount of money you unlock from your home takes you over the savings threshold, you may not be eligible for Council Tax reduction.

Could equity release affect funding for care?

Some homeowners specifically use equity release to help pay for adaptions to make their home more accessible so you can live there for longer. This can include adding a wet room downstairs, for example. 

Of course, any equity release money sitting in your savings will be taken into account should a financial assessment (means test) for care costs be carried out. Please read our articles on care home costs and using equity release to pay for care for more information.

Will equity release affect my benefits?

If you are wondering “how does equity release affect benefits?” or “will equity release affect my benefits?”, we would suggest that you talk to Citizens Advice or appropriate government agencies. They should be able to help you assess whether releasing equity might affect your entitlement to benefits.

As well as getting specialist help to understand how equity release might affect your benefits, you can talk to our selected equity release advisers. They will be able to explain potential solutions, such as a drawdown plan that unlocks money in stages as a way to potentially avoid problems with equity release and benefits entitlement.

To find out more, please call us on 0800 096 2215 or request a call back for a no-obligation appointment. Alternatively, check your eligibility and get an initial indication of how much tax-free cash you could unlock.