Does equity release affect tax credits, benefits, or pension entitlement?

At a glance

  • You can exceed the maximum amount of savings for means-tested benefits if you use equity release.
  • Personal care expenses may be covered with money released from equity release.
  • When your eligibility for benefits are assessed, money released from equity release can be added to your capital or savings

Since equity release is only applicable to those aged 55 and over, rewards earned later in life are most affected. When you take out an equity release, your equity release adviser should be able to tell you about the potential changes in your benefits.

Does equity release affect my eligibility to receive benefits?

When putting together your retirement financial package, it’s important to know what you’re entitled to. In retirement, many individuals are eligible for means-tested state benefits. However, if you want to use equity release as a financial tool to help you live comfortably in retirement, you must first understand how it can affect your eligibility for benefits.

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What are means-tested benefits?

A means-tested benefit is a form of financial assistance that determines your eligibility based on your income and assets (such as savings or investments). This is why it’s crucial to comprehend how equity release can affect your income and capital amounts. Pension Credit is a means-tested benefit that can be affected by equity release. In contrast, disability benefits are paid regardless of income or resources and are not affected by equity release. Pension Credit and Council Tax Reduction are the most common benefits impacted by equity release.

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Pension Credit

First, you can be assured that any decision to take equity release would have no impact on your State Pension. On the other hand, Guarantee Credit is a component of your state pension and may be impacted by equity release. Guarantee Credit will boost your basic State Pension of £125.95 by £37.05 a week if you’re 66 or older and have a weekly salary of less than £163. If you have less than £10,000 in savings, you may qualify for the whole Guarantee Credit. After that, you’ll lose £1 a week of Guarantee Credit for every extra £500 you have in your savings. These figures are correct at 2021 land can change.

Council Tax Reduction

Equity release, like Pension Credit, will impact your eligibility for Council Tax Reduction. You can have up to £16,000 in savings before your Council Tax Reduction is affected.

Other benefits affected by the amount of savings you have are:

  • Income Support
  • Jobseeker’s Allowance
  • Housing Benefit
  • Employment and Support Allowance

Therefore, the money you raise from equity release is an important decision because if you release equity then you could financial be worse off.

Universal Credit

If you have more than £16,000 in savings, you will be ineligible.

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Protecting yourself with equity release

The good news is that you can use equity release to have a comfortable retirement for yourself and your loved ones. It is important to speak with a qualified and experienced equity release advisor before releasing equity from your home. They will go over all of your choices as well as the consequences of any decision you make.

If you want to take advantage of equity release, you can use the money however you want. It may be spent on consolidating your debts, home improvements, or travel. Whatever you choose would have no impact on your eligibility for non-means-tested benefits like the Winter Fuel Payment or free prescriptions if you’re over 60.

What you need to consider

Before releasing equity, you should seek professional advice to comprehend the implications for your retirement. This will allow you to make informed decisions about your future.

A lifetime mortgage is the best option for you if you are considering equity release and you want to retain 100%^ ownership of your home. This mortgage is similar to all other mortgages in the fact that it is secured against your home. No negative equity is guaranteed with any of the equity release plans we recommend, which means you’ll never owe more than the value of your home. We subscribe by the code of business from the Equity Release Council.

Before you take out a loan against your house, think about how it will affect any state benefits you may be entitled to. Before releasing funds from your residence, seek guidance from the Department of Work and Pensions, the Benefits Agency, or the Citizens Advice Bureau.

Be careful of taking equity release and then claiming benefits

The term “deprivation of properties” refers to a form of benefit fraud. This occurs when a person receives benefits and then falsely lowers the value of their savings by giving or spending it. You may be prosecuted for possible fraud if you take out equity release, spend or give money away, and then receive benefits. Any expenditures you have made, as well as the reasons for them, should be reported to the Department of Work and Pensions. Home renovations, loan repayment, and funds for mobility aids are all likely to be handled differently and seen as fair spending rather than an attempt to defraud the benefits system.

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What is the effect of equity release on pension credit?

Taking equity release does not affect the state pension. This is because it is a universal benefit that is open to all, until they hit the state pension age. Pension credit is an extra means-tested incentive that supplemented the state pension for low-income retirees. It is divided into two sections: Guarantee Credit and Savings Credit. On the Government website, you can learn more about the payments available under pension credit. You may also be eligible for other benefits such as Housing Allowance, Council Tax Reduction, Cold Weather Payments, and assistance with NHS services if you collect pension credit. It would help if you weighed the consequences of losing these benefits against the benefits of getting an equity release.

Will my council tax reduction be affected by equity release?

Those with a low income may be eligible for a reduced council tax rate. Each municipality's council tax reduction programme follows its own set of procedures and regulations—however, some general guidelines, such as the amount of money you will save to apply. In general, council tax exemptions are available to retirees with a household income of less than £16,000. Only those seeking Guarantee Credit under Pension Credit are allowed to save more than £16,000. This may be a private or company-sponsored pension. If you're still employed, the local government will set its own savings cap, but it's likely to be £16,000 or less.

Should I use an equity release to fund personal care costs?

If you have more than £23,250 in your bank account, you will have to pay for your own personal treatment. You may use equity release to borrow money to make changes to your home to fit your needs. This can allow you to stay in your own home for a longer period of time. However, if you later need long-term care or pass away, the equity release must be repaid.

Is Universal Credit affected by equity release?

You are not eligible for Universal Credit if you have more than £16,000 in savings.
Want to know more?

For more details, call our Mortgage Saving Experts today.

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