Equity release can affect your eligibility to receive certain state benefits. It could reduce your entitlement or mean that you're no longer eligible. However, this isn't the case for all state benefits.
Releasing tax-free funds locked up in your property could give people the funds they need to enjoy their later life. But if you're considering releasing equity from your home, it's important you understand how it can affect your benefits entitlement.
At Key, we've helped more than one million people understand the ins and outs of equity release. And in this guide, we'll explain how it can affect your eligibility for benefits.
What benefits are affected by equity release?
Equity release can affect your eligibility for means-tested benefits. This is financial support from the state, for which your financial situation is considered when deciding your eligibility. This includes your income and capital.
What is considered for means-tested benefits?
Any capital in assets or places that you can access easily is assessed for means tested benefits, including:
- Funds in bank or building society accounts
- Income bonds
- Premium bonds
- Stocks and shares
- Any owned property other than your home
- Lump sums taken from a pension
- Redundancy pay
- Tribunal awards
These are examples and any assets you own jointly with someone else will typically be assumed to be split equally unless you state otherwise.
How does equity release affect means-tested state benefits?
When you use equity release, you usually receive the money into your current account. So, releasing equity increases the amount of capital you have. This means you may no longer be eligible for some means-tested benefits after using equity release.
This isn't always the case. For instance, if you're using equity release to pay off secured debt, the money you raise can be transferred directly to the lender and won't affect your benefits entitlement. Similarly, once you have spent your equity release funds you could become eligible for benefits again.
Equity release could affect your eligibility for means-tested benefits including: Pension Credit, Council Tax Reduction and Universal Credit.
Does equity release affect State Pension?
To be clear, equity release doesn't affect your State Pension as this is not a means-tested benefit. However, it could affect the Pension Credit element of your State Pension.
Pension Credit supplements your State Pension if you're on a low income. If you have reached State Pension age, Pension Credit can top up your weekly income to £201.05 if you’re single or £306.85 if you have a partner.
Your Pension Credit eligibility also depends on your savings. If you have capital of £10,000 or less, you will receive the full Pension Credit amount. But if you have more than £10,000 in savings or investments, every £500 over £10,000 counts as £1 income a week.
Should releasing equity put your capital above £10,000 in savings it will either reduce or remove your eligibility for pension credit.
Equity release and Council Tax benefit
Some people in the UK receive a reduction on the amount of Council Tax they pay. Eligibility for this reduction is based on income, so using equity release could affect your eligibility to apply for Council Tax Reduction if you do not already have a Council Tax reduction. If you already have a Council Tax Reduction, equity release could affect this and possibly eliminate this.
If you or your partner still receive Pension Credit after using equity release, then your Council Tax reduction won't be affected.
But if neither you nor your partner receive Pension Credit and you have more than £16,000 in capital, then you'd no longer be eligible for Council Tax Reduction. It's worth bearing in mind that each local authority can choose its own savings threshold, but many choose £16,000.
Equity release, Universal Credit and other state benefits
Universal Credit is another means-tested benefit that could be affected by equity release. You aren't entitled to receive Universal Credit if you have more than £16,000 in money, savings or investments. If equity release puts your savings above the threshold it could remove your Universal Credit eligibility.
Universal Credit has replaced several other means-tested benefits that would formerly have been affected by equity release, including Housing Benefit, Income Support, income-based Jobseeker's Allowance (JSA), income-related Employment and Support Allowance (ESA) and more.
Which state benefits are not affected by equity release?
Only benefits that consider your income and capital can be affected by equity release. If you receive a benefit that isn't means-tested, then you don't need to worry about your eligibility being affected.
There are several state benefits that fall into this category, including:
- Attendance Allowance
- Bereavement Support Payment
- Carer's Allowance
- Disability Living Allowance
- New style Employment and Support Allowance
- Personal Independence Payment
- State Pension
- Winter Fuel Payment
What are the benefits of equity release?
There are several benefits to using equity release, including:
- You can unlock cash from your home, tax-free, to help meet your needs in later life
- You’ll always retain full ownership of your home and can stay in it for as long as you wish with a Key lifetime mortgage
- You can choose to make reduced or no monthly repayments to suit your circumstances
- You’ll never owe more than your home’s worth with a Key lifetime mortgage
- You may be able to remortgage your plan in the future to release further funds or secure a better interest rate, although this isn’t guaranteed and may be subject to early repayment charges
What are the downsides of equity release?
As with any financial product, there are pitfalls of equity release that you should be aware of. These include:
- A lifetime mortgage is a loan secured against your home and subject to compound interest, meaning the amount you owe can grow quickly
- Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits
- Equity release may leave you with limited or no property equity remaining
- Equity release will reduce your financial options in the future
- A lifetime mortgage is a long-term financial product and is not designed to be repaid until the death or entry into long term care of the last remaining borrower, otherwise early repayment charges may apply.
Things to consider
- You have to get equity release advice before releasing tax-free cash from your home – please read all our information and make sure it’s right for you
- Key offer lifetime mortgages only, which is a loan secured against your home
- All our plans meet the Equity Release Council standards and come with several protections, including the no negative equity guarantee, which means you’ll never owe more than your home’s future value
- However, it’s important to remember that a lifetime mortgage may leave you with limited or no property equity remaining, and it’ll reduce your financial options in the future.
- All our equity release advice relates to Key lifetime mortgages only, and our fixed advice fee of £899 is only payable on completion of a plan
- You should always think carefully before securing a loan against your home to repay existing debt.
If you are in any doubt about your eligibility for state benefits, you should seek clarification from the Department for Work & Pensions, your Benefits Agency or Citizens Advice before proceeding to release funds from your home. Figures are correct as of time of publication.
How can Key help?
Discussing your situation with an expert adviser is a necessary step before releasing equity from your home. At Key, we'll listen to your circumstances, ensure you consider your options and discuss the implications of any decision you take – including how equity release could affect any benefits you're entitled to.
Why not find out if equity release could be a good fit today? Get in touch to speak with one of our expert equity release advisers. Alternatively, use our free equity release calculator to find out how much you could release.