How Does Equity Release Affect Benefits?

Are you considering releasing equity in your property but don't want to lose your benefit entitlement? In this insight, we answer, how does equity release affect benefits? 

Equity release could be a great solution if you are looking to boost your retirement income and enjoy the fruits of your labour. Although you own this asset, your home is still your home, and you shouldn't suffer in retirement because you worked so hard to pay off your mortgage. There are options available to help ease the pressure and enjoy your golden years. If this sounds like you, you will want to make sure that equity release is the right option for you. One of the considerations you may be wondering about is how it could affect your entitlement to benefits, or your retirement income. 

Key Takeaways:

• The act of Equity release does not have an impact on your eligibility for benefits, but the amount of savings you have left after releasing equity may affect your entitlement to means-tested benefits.
• Some benefits are assessed based on income and capital, and taking equity release for personal use or income top-up may affect your eligibility for these benefits.
• Equity release may affect your eligibility for certain care allowances, but there are exemptions and allowances that may apply depending on your individual circumstances.
• Seek expert advice when considering equity release, as it is a complex financial product that requires careful consideration.

Equity release is a way to access the equity in your property without having to give up ownership. There are two main types of equity release: lifetime mortgages and home reversion plans. With a lifetime mortgage, you can borrow against the value of your property, receiving either a lump sum or regular payments, without the need to make any repayments until you pass away or sell your home. The loan is secured against your property, which means that the lender has a charge over it.
On the other hand, a home reversion plan involves selling a portion of your property to a provider for a lump sum or regular payments. You still have the right to live in your home, but the provider owns a share of the property, which they can sell when you pass away or move out. This can be a useful option for those who prefer not to borrow against their property or want to have a guaranteed amount of equity released. 

How Does Equity Release Affect Benefits?

Equity release does not affect eligibility for benefits, but the amount of savings left after releasing equity may impact entitlement to means-tested benefits. Equity release can affect the entitlement to certain care allowances, but there are exemptions and allowances that may apply based on individual circumstances.

Equity release itself does not have an impact on your eligibility for benefits. However, if you receive means-tested benefits, the amount of savings you have left after releasing equity may affect your entitlement. Means-tested benefits are based on your income and capital, with capital referring to any assets you own, including your property, savings, and investments. If the value of your capital exceeds a certain limit, you may no longer be eligible for those benefits.
This applies regardless of whether you use a lifetime mortgage or a home reversion plan to release equity. It's important to note that not all benefits are means-tested, such as Disability Living Allowance or Attendance Allowance. If you receive non-means-tested benefits, equity release should not have an impact on your entitlement

Which Benefits Are Affected By Equity Release?

Some benefits are assessed based on income, meaning that they are means-tested and your eligibility depends on your income and capital. For instance, to claim Council Tax Reduction, your capital should be below £16,000. However, taking equity release for personal use or income top-up may affect your eligibility for this benefit.

Universal Credit is another benefit that is income assessed. If your savings are below £6,000, you must declare them, but they won't impact your Universal Credit entitlement. However, if your savings are between £6,001 and £16,000, your Universal Credit amount may be affected. Having savings over £16,000 makes you ineligible for Universal Credit.

It's worth noting that Universal Credit has replaced several other benefits, such as Child Tax Credit, Housing Benefit, Income Support, income-based Jobseeker's Allowance (JSA), income-related Employment and Support Allowance (ESA), and Working Tax Credit.

Here's a list of some benefits in the UK that are means-tested:

• Income Support
• Housing Benefit
• Council Tax Reduction
• Universal Credit
• Jobseeker's Allowance
• Working Tax Credit
• Child Tax Credit
• Pension Credit
• Free School Meals

How Does Equity Release Affect State Pension?

Equity release does not affect your entitlement to state pension, which is a regular payment made by the government to individuals who have reached state pension age. The amount you receive is determined by your National Insurance contributions.

If you opt for a lifetime mortgage, the loan amount you receive is not considered as income and therefore does not affect your state pension. However, the interest that accrues on the loan is considered as income, which may reduce your entitlement to Pension Credit, a means-tested benefit.

On the other hand, if you choose a home reversion plan, the money you receive from selling a share of your property is considered as income. As a result, your entitlement to Pension Credit and other means-tested benefits could be reduced. It's essential to note that the money received from a home reversion plan may also impact your eligibility for local benefits such as Council Tax Support.

How does Equity Release affect Pension Credits?

Pension Credit is a benefit that tops up the basic state pension for eligible individuals. The current rate of Guarantee Credit is £163 per week. If you have savings and capital below £10,000, it won't affect your Pension Credit. But for every £500 in savings over £10,000, you'll lose £1 per week of Guarantee Credit.

Does Equity Release Affect Care Benefits?

When considering equity release, it's important to be aware that it can potentially impact your entitlement to certain care allowances for support with the costs of care. If you use the money released from your home to pay for care services, such as a care home or in-home care, it may be considered as a capital asset. This means that it could affect your eligibility for local authority-funded care or council tax support, which are means-tested benefits.

However, it's worth noting that there are certain exemptions and allowances that may apply depending on your individual circumstances. For instance, if you or your spouse still live in the home and require care, the value of the property may be disregarded in the means test for local authority-funded care.

How Does Equity Release Affects benefits

Equity release is a complex financial product that requires careful consideration and expert advice. There is no one size fits all solution when it comes to equity release, as everyone's circumstances are different. When looking at the question, How does equity release affect benefits, it's important to consider your personal situation. Seek professional advice so you understand the impact on your benefits and explore alternative options if necessary. By being well-informed, you can make an informed decision that is right for you. If you're not sure where to start with seeking advice on equity release, you can complete the Sunny Fact Find. The answers you provide help us to find the best-suited adviser for your needs. Your adviser contacts you for a no-obligation chat on how they can help. You decide how to proceed.