Equity Release and Benefits

Why this matters

Your home itself is disregarded when assessing eligibility for most means-tested benefits — its value does not count as capital. But once you release equity and the money sits in your bank account, it becomes assessable capital. Depending on how much you release and what you do with it, your benefit entitlement can change substantially — sometimes immediately.

For some homeowners, the benefits at risk are modest. For others — particularly those relying on Pension Credit to top up a low pension income — the loss of means-tested benefits could significantly outweigh the financial benefit of releasing equity. This calculation must be done before proceeding, not after.

A regulated equity release adviser is required by FCA rules to consider your benefits position as part of the advice process. If you are in any doubt about your current benefits entitlement or how equity release would affect it, a benefits check is an essential first step.

Which benefits are means-tested?

The following benefits are means-tested and assessed with reference to your capital and/or income:

• Pension Credit — a top-up for people over state pension age with low income. Both the Guarantee Credit and Savings Credit elements are means-tested.
• Council Tax Reduction (also called Council Tax Support) — a local authority discount on your council tax bill, based on income and capital.
• Housing Benefit — for those renting who need help with housing costs. Now mostly replaced by Universal Credit for new claimants.
• Universal Credit — the main working-age benefit; not available to those above state pension age but may apply to younger partners in mixed-age couples.

Benefits that are not means-tested and therefore unaffected by releasing equity include the State Pension, Attendance Allowance, Disability Living Allowance (DLA), Personal Independence Payment (PIP), and Carer's Allowance. These are paid regardless of savings or capital.

The capital threshold rules

For most means-tested benefits, DWP applies a standard capital threshold system. The rules can change and vary between benefits, but the general framework as of 2026 is:

• Below £6,000: Capital is generally disregarded — it does not affect benefit entitlement.
• £6,000 to £16,000: Benefits are reduced using a "tariff income" system, which assumes you receive a notional income from your savings even if you do not. For every £500 (or part thereof) of capital above £6,000, £1 per week is added to your assumed income, reducing the benefit paid.
• Above £16,000: Most means-tested benefits stop entirely. You are assumed to have sufficient capital to meet your needs.

These thresholds apply to liquid capital — money in bank accounts and accessible savings. The released equity, once it sits in your account, falls squarely into this category.

How equity release affects the calculation

If you release, say, £40,000 as a lump sum and place it in your current account, you will immediately have capital well above £16,000 — and most means-tested benefits will stop. If you currently receive Pension Credit worth £3,000 per year, losing it permanently is equivalent to a £3,000 annual cost that continues for the rest of your life. Over ten years, that is £30,000 — a significant sum relative to the equity released.

As the money is spent down — on home improvements, living costs, or other purposes — your capital falls, and benefit entitlement may be restored once it drops below the relevant threshold. However, DWP applies a rule called "deprivation of capital": if you are found to have deliberately spent capital in order to restore benefit entitlement, DWP may treat you as still having the capital for assessment purposes. Spending the money on reasonable living costs or genuine needs is acceptable; giving it away specifically to reduce your capital may not be.

The drawdown advantage

One practical strategy for managing the benefits impact is to use a drawdown lifetime mortgage rather than a lump sum product. With a drawdown plan, you take an initial amount and draw further funds only as needed. If you draw small amounts regularly — keeping your total cash savings below the relevant thresholds — you may be able to retain means-tested benefit entitlement that a large lump sum would have ended.

For example, drawing £5,000 to cover a home repair keeps your capital below £6,000 (assuming limited existing savings). Drawing the same £5,000 from a reserve annually over several years has a very different capital impact than taking £50,000 as a lump sum on day one.

This approach requires careful management and regular review, and should be part of the advice process. A benefits-aware adviser will help you structure the drawdown to minimise the impact on your entitlements.

What to do before proceeding

Before committing to any equity release plan, anyone who receives or may be entitled to means-tested benefits should:

• Carry out a full benefits entitlement check — either through a specialist benefits adviser, Citizens Advice, or an online benefits calculator such as those provided by entitledto.co.uk or Turn2us.
• Ensure the equity release adviser is aware of all current benefit entitlements and factors them into the advice.
• Model the impact of different release amounts and structures (lump sum vs drawdown) on benefit entitlement.
• Consider the long-term picture: if the released funds will be spent within a year or two, benefits may be restored relatively quickly. If the cash will be held for longer, the impact is more sustained.

This is not a box-ticking exercise — for some homeowners, it is the most financially significant part of the entire decision.

Equity release and local authority care funding

Beyond DWP benefits, releasing equity may also affect how local authorities assess your contribution to care costs if you or your partner ever need residential or domiciliary care. Local authorities conduct financial assessments (means tests) of their own, and cash held in savings is included as capital in the same way as for DWP benefits.

The property itself is generally disregarded for the first 12 weeks of permanent residential care, and indefinitely if a spouse or partner continues to live in it. However, once the property is sold to repay the equity release loan, the remaining proceeds (after repaying the loan) may be assessed as capital for care funding purposes.

This is a complex area that intersects with equity release, benefits, and estate planning. It is worth raising explicitly with a regulated adviser and, where appropriate, with a specialist solicitor.