How does equity release affect state benefits?
How does Equity Release affect State Benefits?
Releasing equity from your home using an equity release product like a lifetime mortgage is a big decision and, while the benefits of equity release can be great – money to live on, enjoy your retirement, help your family, improve your home and more – it can have negative consequences. One area which is not commonly understood is the impact equity release can have on means-tested state benefits.
Here, we answer the question: How does Equity Release affect State Benefits and where you can find more information?
What are means-tested state benefits?
Means-tested state benefits are financial support from the government where your eligibility is decided only once your income and capital (such as savings and investments) have been taken into consideration.
Normally there is a threshold which if you breach it (for example, by having savings over a certain amount) you will either gain less of the benefit or none at all.
Pension Credit and Council Tax Reduction are the two most common benefits which might be affected by equity release.
Let’s look at how they work in practice.
Is Pension Credit affected by Equity Release?
Before we look at Pension Credit, it’s worth stating that regardless of when you reached State Pension age or if you haven’t reached it yet, your State Pension would not be affected by any decision to take equity release.
However, Pension Credit, which is separate from your State Pension, might be.
Pension Credit gives you extra money to help with your living costs if you’re over State Pension age and on a low income. Pension Credit can also help with housing costs such as ground rent or service charges.
Pension Credit top-ups for those who have reached State Pension age are:
An increase in your weekly income to £177.10 if you’re single.
An increase in your joint weekly income to £270.30 if you have a partner (such as a spouse/civil partner or someone you live with).
If your income is higher than these amounts, you might still be eligible for Pension Credit if you have a disability or you care for someone.
Income and savings that may reduce your entitlement to Pension Credit:
Income from your State Pension and other pensions (even if you’ve deferred taking them).
Earnings from employment and self-employment.
Some State Benefits, such as Carer’s Allowance (but not Attendance Allowance, Christmas Bonus, Personal Independent Payment and others).
Savings and investments over £10,000.
The amount of savings over £10,000 will reduce your entitlement by £1 per week by every £500 of savings above £10,000. For example:
If you have £12,000 in savings, your Pension Credit would be reduced by £4 per week.
If you have £15,000 in savings, your Pension Credit would be reduced by £10 per week.
If you have £20,000 in savings, your Pension Credit would be reduced by £20 per week.
Your savings could be held in cash, in a bank or building society current or savings account, in National Savings and Investments (NS&I) products including Premium Bonds, or any type of investment such as an ISA, bond or stocks and shares. Second homes and buy-to-let properties are also normally included. They all count towards this savings figure.
One other important point to note is that if you lose your entitlement to Pension Credit you may also lose the Cold Weather Payment; and if you are age 75 or over, you would lose your entitlement to a free TV Licence.
Is Council Tax Reduction affected by Equity Release?
Council Tax Reduction (sometimes called Council Tax Support) allows eligible claimants to get a discount on their council tax bill, up to 100%. This discount may be reduced (or lost completely) by equity release.
Normally, if you have more than a certain amount in savings and investments, you will lose your entitlement to the Council Tax Reduction:
£6,000 for anyone below State Pension age.
£16,000 if you are over State Pension age.
What other benefits are affected by Equity Release?
While Pension Credit and Council Tax Reduction are two of the more common means-tested benefits, the following benefits might also be affected by taking out equity release:
Which State Benefits are not affected by Equity Release?
Not all state benefits are affected by equity release. Here are some of the most common that would be retained even after taking out an equity release product on your home:
Help with certain NHS treatments and costs, such as dental treatment, glasses and transport costs for hospital appointments.
Transport benefits such as free bus pass and a blue parking badge.
How to check my eligibility for State Benefits?
There are several calculators out there that can help show you what you may be eligible for. If you’re ever in doubt, it’s always worth applying just in case. You can follow the links below to check your eligibility for State Benefits.
What’s next?
You can read our in-depth article, What is Equity Release and how does Equity Release work for a more detailed look at Equity Release or head over to our equity release calculator to get a quick estimate on the amount of money you could release from your property with a home equity loan.
How can AV Trinity help with your Equity Release questions?
If you need responsible equity release advice you can speak to a Chartered Financial Adviser here in Tunbridge Wells, wherever you are in the UK. Our financial advisers are Equity Release experts and on hand to help you find an equity release plan that suits your needs, whether that's a lifetime mortgage or home reversion plan.
Your financial adviser can also offer broader financial advice on a range of topics from pensions and investments to inheritance tax and estate planning. We offer a free, no-obligation initial consultation at our office, over the phone or by video chat.
This article offers information about financial planning and should not be taken as personal advice. Equity Release will reduce the value of your estate and may affect your entitlement to state benefits.