How does equity release affect state benefits?

Taking equity release could result in your entitlement to means tested state benefits being reduced or removed. It can also have an affect on any funding you might receive for care services. Local authorities and the Government use your income and savings to decide if you need means tested state benefits. Equity release is also called a lifetime mortgage and allows you to borrow money against the equity held in your home. This money you borrow is then released to you as cash and this can then be included as income or capital/savings when your circumstances are tested for state benefits.

Equity release is only available to those aged 55 and over so the most affected benefits are those in received in later life. Your equity release adviser should be able to inform you about what the changes in your benefits could be when taking out equity release.

The state pension is not affected by taking equity release. This is because it is a universal benefit available to all once they reach state pension age. Pension credit is an additional means-tested benefit that tops up the state benefit for those pensioners with low incomes. It has two parts Guarantee Credit and Savings Credit.

You can find out more about the payments available under pension credit on the Government website.

If you receive pension credit then you also qualify for other benefits including Housing Benefit, Council Tax Reduction, Cold Weather payments and help with NHS services. You should check the impact of losing these benefits compared to your gains of receiving equity release.

Those earning a low income could be entitled to a reduced rate of council tax. Each local authority has its own process and rules for their council tax reduction scheme. There are though some general rules which include how much you can have in savings to qualify. Generally, pensioners with less than £16,000 will qualify for council tax reductions. Only those that are claiming Guarantee Credit under Pension Credit can have more than £16,000 in savings. This could include a private or workplace pension. If you are still working then local authorities can set their own limit for savings, but it is likely to be £16,000 or less.

If you have more than £23,250 in capital, then you will need to self-fund for your own personal care costs. You can use equity release to borrow funds that could be used to adapt your home to your needs. This may help you to stay in our own home for longer. However, the equity release needs to be repaid if you later go into long term care or when you pass away.

If you have more than £16,000 in savings, then you are not entitled to claim Universal Credit. You should therefore check the loss of any Universal Credit income compared to funds generated from equity release.

There is a type of benefit fraud called ‘deprivation of assets.’ This is when someone claims benefits and artificially reduces the value of their savings by giving money away or spending it. If you take out equity release, spend or give money away and then claim benefits you could be investigated for potential fraud. You should let the Department of Work and Pensions know about any spending you have made and the reasons for it. Spending on home improvements, paying off debt and money to help with mobility are all likely to be treated very differently and seen as reasonable spending as opposed to trying to defraud the benefits system.