Frequently Asked Questions

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How should annuity income be treated?

Annuities are specifically defined for means-testing purposes as income, not capital, even where the structure of the payments might appear more like payments from capital and/or where HMRC regards some or all of the payment from the annuity as capital and not subject to income tax.

In the special case where someone has taken out a loan and used it to purchase annuities, and some of the resulting income is used to service the interest repayment (a typical feature of a "home income plan") then both CTB and PC will ignore as income any payment from the annuity that is used to pay the interest. This will be the case provided that the loan:

• was made to someone who was aged 65 or more (and whose partner was 65 or more if the annuitants are a couple)
• was made as part of a scheme under which not less than 90% of the proceeds of the loan were used to purchase an annuity
• was secured on a dwelling in Great Britain and the annuitant(s) owns an interest in the dwelling and occupy it as his/their home

The amount ignored will be the net amount payable where tax is paid, otherwise the gross amount payable. Note though that this relates only to the element used to make interest repayments, the remaining income from the loan will be fully taken into account as income.