Does Equity Release Affect Benefits?

Equity release is an increasingly popular way for homeowners over 55 to unlock the value tied up in their property. While it can provide a much-needed financial boost, it’s essential to understand how it may impact means-tested benefits such as Pension Credit and Council Tax Reduction.

What Is Equity Release?

Equity release allows homeowners to access cash from the value of their property while continuing to live in it. There are two main types:

• Lifetime Mortgage – A loan secured against your home that accrues interest, typically repaid when you pass away or move into long-term care. Lifetime mortgages are now the most popular method of equity release.
• Home Reversion Plan – You sell part or all of your property in exchange for a lump sum or regular payments while retaining the right to live there. However, home reversion plans are no longer commonplace.

Means-Tested Benefits Explained

Some government benefits are based on your income and savings. If you exceed a certain threshold, you may no longer be eligible for them. Key benefits affected by equity release include:

• Pension Credit – A top-up for pensioners with low income.
• Council Tax Reduction – A discount on council tax for those on low income.
• Other benefits – Certain disability or housing benefits may also be impacted.

How Equity Release Can Affect Pension Credit

Pension Credit consists of Guarantee Credit and Savings Credit:

• Guarantee Credit tops up income to a minimum level. If the money from equity release is considered “capital,” it could reduce or eliminate entitlement.
• Savings Credit rewards those with modest savings or pensions. If equity release increases your savings, you may lose this benefit.

The key factor is how the released funds are used. If spent immediately (e.g., on home improvements), they may not count as capital. However, if they are kept as savings, they could impact eligibility.

Impact on Council Tax Reduction

Council Tax Reduction is also means-tested. If your savings exceed the local authority’s threshold (often £16,000), you may lose this benefit.

Again, whether the funds affect your eligibility depends on how they are used. Some councils may allow a grace period for spending the money before reassessing eligibility.

Ways to Minimise the Impact on Benefits

1. Use Drawdown Lifetime Mortgages – Instead of taking a lump sum, withdraw smaller amounts as needed to avoid large savings accumulation.
2. Spend the Money on Permitted Expenses – Home improvements, care costs, or clearing debts may not be considered savings.
3. Consult a Financial Adviser – A specialist can help structure equity release to minimise its impact on your benefits.

Conclusion

Equity release can provide financial freedom but may affect means-tested benefits like Pension Credit and Council Tax Reduction. Before proceeding, it’s crucial to understand how it impacts your finances and consider professional advice to make an informed decision.

For tailored equity release guidance, speak to an independent financial adviser or contact our team for expert support.