Equity release may affect your entitlement to some state benefits and care funding. The essential question is whether your benefits are means-tested or not? Meaning, is your access to the benefit based on your income and savings? If they are not, then your equity release will not impact on your claim. But if your entitlement is means-tested, any money kept as cash in savings could take you above the thresholds to receive the benefit.
So what is and what isn't affected by equity release:
If you are releasing equity from your home to pay off your mortgage, or any secured loans, you will not repay the lender from your bank account. Instead, the funds will be paid directly to the mortgage or loan company by the lender's solicitors upon completion of your equity release. Meaning that the money will never go into your bank account, and will not count as towards your savings. Therefore, the amount released for this purpose will not affect any benefits you are receiving, even if the benefit is means-tested!
Remember though, the monthly payments you have been making towards your mortgage or secured loan will no longer be required. So, unless you spend the money on something else, the cash will become part of your savings. If this takes you over the Government limits, you may lose some, or all, of any means-tested benefit entitlement you may currently have.
You can check your benefit entitlement by visiting www.gov.uk/benefits-calculators.
Another helpful website which I often use is www.entitledto.co.uk.
The Government measures your capital, income and savings to decide if you require any state benefits. Ordinarily, your primary residence is excluded from means-tested benefits calculations.
However, remember, if you release money as cash, you may go over the Government saving limits. Therefore, you could lose some or all of your entitlement to benefits you may be claiming.
In this guide, you will learn:
When looking at your savings, you will need to consider the money that you can access fairly easily, and also financial products that can be sold on.
Examples of types of savings considered for means-tested benefits include:
- The money you have in your bank or building society accounts, including current accounts that don't pay interest
- Money in a Tax-Free Childcare account
- National Savings accounts and certificates
- Income bonds
- Stocks and shares
- Property that you own (other than your own home)
- Premium Bonds
Your capital is generally valued at its current market value (or the item's surrender value less 10% if there would be costs involved in selling), less any debt secured on a property.
If you own capital jointly with another person or with other people, then assessments will typically assume that you have an equal share of the ownership.
Some savings are not included or considered for assessment, and these may be:
- The value of any property occupied by someone who is a 'close relative' if they have reached pension credit qualifying age or are 'incapacitated'.
- The value of a property for up to 26 weeks if you have acquired it to live there, you are trying to sell it, you are carrying out essential repairs or alterations to live there, or you are taking legal advice so that you can live there.
- The value of a former home for up to 26 weeks if you have left because of a relationship breakdown. Or indefinitely if your former partner lives there as a lone parent.
- Sale proceeds of your home for up to six months if you intend to buy another home.
- Money from insurance claims for up to six months if used to replace or repair.
- Money from loans or grants to pay for essential repairs or improvements.
Other types of savings that aren't part of the assessment may be:
- your possessions such as jewellery, furniture or a car
- your business assets
- any life insurance policy which has not been cashed in
- any charge for currency conversion if your capital is not held in sterling
- any Social Fund grant payments
- arrears of certain state benefits
- the value of a pre-paid funeral plan (for some working-age means-tested benefits)
Please be aware that if you deprive yourself of capital to increase the amount of benefit you receive, you can be treated as if you still had that capital. This is called 'notional capital'.
For example; This may occur if you give money away to members of your family or buy expensive items to reduce your capital.
However, you will not be considered to have deprived yourself of capital if you have paid off debts or used any money for 'reasonable' spending on goods and services.
Council Tax Reduction – If you are claiming this benefit, you will have less than £16,000 in capital. Be aware that taking equity release for personal use or income top-up could affect this.
Universal Credit - If you have less than £6,000 in savings, you'll have to declare it, but it won't affect your universal credit entitlement. Having between £6,001 and £16,000 will affect your Universal Credit amount. Anything more than £16,000 in savings will stop your eligibility to claim Universal Credit.
Universal Credit replaced the following benefits:
- Child Tax Credit
- Housing Benefit
- Income Support
- income-based Jobseeker's Allowance (JSA)
- income-related Employment and Support Allowance (ESA)
- Working Tax Credit
Our advisers will be happy to help you find out what you are entitled to and in turn, discover if this will be affected by taking equity release. Call us on 0207 158 0881 or use our online form to book your FREE consultation.
Once you have your appointment arranged, you will be asked to have the following information prepared ready for your:
- income, including your partner's (from payslips, for example)
- existing benefits and pensions (including anyone living with you)
- outgoings (such as mortgage and bills)
- council tax bill
Benefits that do not require means testing are not affected by equity release. You will find some examples of such benefits below:
Disability benefit will not be affected by equity release as it is a benefit paid regardless of your income or capital.
Personal Independence Payment (PIP) is a benefit that helps with the extra costs of a long-term health condition or disability for people aged 16 and over. It is also gradually replacing Disability Living Allowance (DLA) for 16-64 year olds.
Equity release can also affect how you pay for later life care. One way to use equity release to help with care is as a way to fund making necessary adaptations that allow you to stay in your home as long as possible. If you take equity release, and you do later need to move into residential care, you will then have to sell your house and pay off the equity release when you move out.
However, if you have taken equity release with your partner and your partner remains living in the property, they do not need to move out. The home will not need to be sold until the second person passes away or moves into long term care themselves.
Is there help with Costs of home adaptations?
Small adaptation to your property can often be free – Your council may help pay for each adaptation that costs less than £1,000. This may be for items such as:
- Grab rails
- A concrete ramp or steps
- Lights that come on when someone is at your front door
You may also be able to get help with costs for more expensive adaptations, like fitting a wet room or widening doors.
There are many charities setup which offers grants. Independence at Home is a charity that does exactly this! You can visit their website www.independenceathome.org.uk to find out more about the work they do.
A Home Improvement Agency (HIA) may also be able to help you find schemes to help with the cost of adaptations. To find a local HIA you can visit www.findmyhia.org.uk/about.
Some local councils may be able to help with the cost of any urgent home alterations, so do check with your council or HIA.
Your private and state pension is unaffected by equity release.
However, the guarantee credit part of pension credit, which tops up the statement pension to increase pensioners' weekly income, can be affected.
Pension Credit – Guarantee credit is to top up the basic state pension of £125.95 a week for an individual to £163 a week.
You have an allowance of £10,000 in capital before your pension credit is affected. However, over that amount, for every £500 that you have in savings, you will lose £1 a week in guarantee credit.
Indefinite assessed income periods - You may have a pension credit award with an indefinite assessed income period (open-ended AIP) if you or your partner are aged 75 or over. This means you no longer have to report changes to most kinds of income you receive unless the change would increase the amount of pension credit you receive.
Changes you do not have to report if you have an open-ended AIP include:
- income from equity release schemes
- income from annuities or private pensions
- savings or investments
If you have an open-ended AIP, it will remain in place until your circumstances change.
If you have further questions, why not speak with one of our qualified advisors?
Call us on 0207 158 0881 or use our online form to book your FREE consultation.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.