Equity Release and Benefits

Main guide

Equity Release and Benefits

Can equity release affect benefits?

Yes. Equity release can affect benefits, especially if they are means-tested.

A means-tested benefit looks at your income, savings or capital when deciding whether you qualify and how much you receive.

When you release money from your home, the funds may be counted as capital if they remain in your bank account or savings. This could reduce or remove entitlement to some benefits.

The impact depends on:

• which benefits you receive
• how much money you release
• how much capital you already have
• whether you take a lump sum or drawdown
• how quickly the money is spent
• what the money is used for
• whether you give money away
• whether you may need care funding
• benefit rules at the time of assessment

This is why equity release advice should not only focus on how much you can borrow. It should also consider whether releasing money could leave you worse off overall.

You can read more about how equity release works here: How Does a Lifetime Mortgage Work?

What are means-tested benefits?

Means-tested benefits are benefits where your income, savings or capital affect whether you qualify.

Examples may include:

• Pension Credit
• Council Tax Support
• Housing Benefit
• Universal Credit
• Income Support
• income-related Employment and Support Allowance
• income-based Jobseeker’s Allowance
• local authority grants
• help with care costs

The exact rules depend on the benefit and your circumstances.

If you receive any of these, or think you may claim them in the future, equity release needs careful review before you apply.

What are non-means-tested benefits?

Some benefits are not based on savings or capital.

Examples may include:

• State Pension
• Attendance Allowance
• Personal Independence Payment
• Disability Living Allowance
• Carer’s Allowance, although earnings rules can apply
• some bereavement benefits

These benefits may not be directly affected by releasing money from your home. However, your wider financial situation should still be reviewed because different benefits can interact, and rules may change.

If you are unsure whether a benefit is means-tested, check before applying for equity release.

How does released money count as capital?

When you release money through equity release, the money may be treated as capital once it is paid to you and held in your account.

Capital usually includes money in:

• current accounts
• savings accounts
• ISAs
• investments
• cash holdings
• some other assets

If releasing equity increases your capital above benefit thresholds, your entitlement may reduce or stop.

This can be a problem if you take a large lump sum and do not spend it immediately for the intended purpose.

For example, if you release money for future home improvements but leave it in your savings account for several months, it may be counted when your benefits are assessed.

This is one reason a drawdown lifetime mortgage may sometimes be considered, because it can allow smaller withdrawals over time. However, drawdown does not remove the need for benefit checks.

How could equity release affect Pension Credit?

Pension Credit is means-tested. This means capital and income can affect entitlement.

If you release money from your home and keep it as savings, it could affect whether you qualify for Pension Credit or how much you receive.

The impact depends on your existing income, savings, household circumstances and the rules that apply at the time.

This is important because Pension Credit can also act as a gateway to other support, such as help with health costs, Council Tax Support or other linked benefits in some circumstances.

Losing Pension Credit could therefore have a wider impact than the weekly payment alone.

Before applying for equity release, ask for a benefit check if you receive Pension Credit or may be close to qualifying.

Can equity release affect Council Tax Support?

Yes, equity release can affect Council Tax Support.

Council Tax Support is means-tested and run by local councils. The rules can vary depending on where you live.

If money released from your home increases your savings or capital, your council may reduce or stop support.

This is especially important if you release a lump sum and keep it in your bank account.

Because schemes vary, you may need to check with your local council or get specialist benefits guidance before proceeding.

Can equity release affect Housing Benefit?

Yes, it may.

Housing Benefit is means-tested. If you receive Housing Benefit and release money from your home, the capital may affect entitlement.

This situation is less common for homeowners living in their own property, but it can be relevant in some circumstances, such as leasehold, shared ownership, mixed household arrangements or if you receive housing-related support.

If you receive Housing Benefit or any housing-related support, this should be checked before you apply.

Can equity release affect care funding?

Yes. Equity release can affect care funding and local authority support.

If you release money and hold it as savings, it may be counted in a financial assessment for care support.

If you give money away and later need care, the local authority may consider whether you deliberately reduced your assets to avoid paying for care. This is sometimes referred to as deprivation of assets.

The rules can be complex and depend on timing, intention and circumstances.

If care needs are likely, or if you are considering equity release to pay for care-related costs, you should get specialist guidance before making a decision.

Can equity release affect local authority grants?

It can.

Some local authority grants or support schemes are means-tested. If equity release increases your savings, it may affect eligibility.

This could include certain home improvement grants, disabled facilities-related support or local welfare schemes, depending on the rules in your area.

Before releasing money for home adaptations or improvements, check whether grants or local support may be available first. Using equity release when a grant could have helped may not be the best option.

Does the purpose of the money matter?

Yes, the purpose can matter, but it does not automatically solve the benefit issue.

If you release money and spend it quickly on a reasonable purpose, such as essential home repairs, repaying an existing mortgage or adapting your home, the benefit impact may be different from releasing money and keeping it in savings.

However, benefit agencies may still ask what happened to the money, when it was spent and why.

If you give money away, spend unusually large amounts or move money without a clear reason, this could raise questions.

You should keep records of:

• how much you released
• when you received it
• what it was used for
• invoices or receipts
• advice received
• any benefit checks completed

Good records can help if questions arise later.

Is lump sum equity release riskier for benefits?

A lump sum can create a higher benefit risk if it leaves you holding a large amount of capital.

For example, if you release a large amount for future spending and keep it in savings, it may affect means-tested benefits.

This does not mean lump sums are always unsuitable. They may be needed for specific purposes, such as repaying an existing mortgage or paying for major works.

The key question is whether the amount released, and the way it is held or spent, could affect your benefit entitlement.

If you only need money in stages, drawdown may be worth considering.

Can drawdown help with benefits?

Drawdown may help reduce the risk of holding more capital than needed.

With a drawdown lifetime mortgage, you take an initial amount and keep a reserve available for later. Interest is usually charged only on the money released, and you may avoid holding a large lump sum in savings.

This can be helpful where you need money over time rather than all at once.

However, drawdown does not guarantee that benefits will be unaffected. Each withdrawal may still be counted as capital once it is paid to you and remains unspent.

Future withdrawals may also depend on lender rules and product terms.

Benefit checks are still needed.

Read more here: How Much Equity Release Can I Get?

Can gifting equity release money affect benefits?

Yes. Gifting money can affect benefits and care funding.

If you release money and give it to family, the benefit authority or local authority may look at whether you have deliberately reduced your capital to keep or increase benefit entitlement.

This is often called deprivation of capital or deprivation of assets.

The rules depend on the benefit, timing, amount and intention.

For example, gifting money to children or grandchildren may be a genuine family decision, but it can still create questions if you later claim means-tested benefits or care support.

Before gifting money from equity release, consider:

• whether you can afford to give it away
• whether you may need the money later
• whether benefits could be affected
• whether care funding could be affected
• whether tax or legal advice is needed
• whether family understands the long-term cost

You can read more here: Equity Release and Inheritance

Could equity release make you worse off?

It could, in some circumstances.

Equity release may provide money upfront, but if it reduces benefits or support, the overall outcome may be worse than expected.

For example, you might release money to improve your financial comfort but then lose means-tested support that helped with everyday costs.

You also need to consider the long-term cost of the lifetime mortgage, including interest. If interest rolls up and benefits reduce, the plan may not deliver the outcome you hoped for.

This is why advice should consider both the immediate benefit and the long-term impact.

How should benefits be checked before equity release?

Before applying for equity release, you should review:

• all benefits currently received
• benefits your partner receives
• local authority support
• Council Tax Support
• grants or home improvement support
• care funding position
• current savings and capital
• expected future income
• planned use of the released money
• whether the money will be held or spent
• possible future benefit entitlement

A qualified equity release adviser should ask about benefits as part of the fact-find and suitability assessment.

In some cases, specialist benefits advice may be needed. This might be from a benefits adviser, local authority, Citizens Advice, Age UK or another specialist organisation.

Should you use an equity release calculator if you receive benefits?

An equity release calculator can give a broad estimate of how much you may be able to release, but it cannot tell you whether equity release is suitable.

It also cannot fully assess:

• benefit entitlement
• local council rules
• care funding
• capital treatment
• gifting issues
• estate planning
• health and future needs
• product suitability

If you receive means-tested benefits, a calculator result should be treated only as a starting point.

You can start here, but advice is essential before making any decision: Equity Release Calculator

What alternatives should be considered?

If benefits may be affected, alternatives should be reviewed before equity release.

These may include:

• checking benefit entitlement first
• claiming benefits or grants you are already entitled to
• local authority support
• home improvement grants
• help from family
• using savings carefully
• downsizing
• remortgaging
• a retirement interest-only mortgage
• a later-life mortgage
• budgeting support
• debt advice where relevant
• delaying the expense
• reducing the amount needed

Sometimes, checking benefits first may reveal support you did not know you could claim. This could reduce or remove the need for equity release.

Read more here: Alternatives to Equity Release

What questions should you ask before taking equity release?

Before deciding, ask:

• Do I receive any means-tested benefits?
• Does my partner receive any benefits?
• Could I qualify for benefits in the future?
• How much capital do I already have?
• How much would I release?
• Would I keep the money in savings?
• Would a lump sum affect my entitlement?
• Would drawdown be more suitable?
• Am I planning to gift money?
• Could care funding be affected?
• Could Council Tax Support be affected?
• Are grants available instead?
• Have I had a benefit check?
• What happens if benefit rules change?
• Would I still be better off overall?

A suitable recommendation should answer these questions clearly before you apply.