As we get older and consider how we are going to support ourselves during retirement, a common option that many homeowners consider is to release some of the equity that they have built up in their properties over the years. Equity release involves receiving regular payments or a lump sum of money that was previously tied up in your property. Depending on what kind of equity release plan you choose to go for, this can sometimes affect some state benefits you may be entitled to when you are retired.
Different kinds of equity release
There are generally three kinds of equity release:
1. Where the equity that is released goes straight to the mortgage company or lender to pay off an existing mortgage.
2. Where equity release is used to buy a property.
3. Where the money comes to you either as a lump sum or regular payments.
If you decide on option one or two, the money does not enter your bank account, and it will not affect your benefits – even if they are means-tested. If, however, you go for option three, the money comes into your bank account, and will, therefore, be counted when the means assessment is carried out, potentially affecting the benefits that you are eligible for.
It is also important to remember that if you are using the equity that is released from your property to pay off your mortgage or unless you continue paying your mortgage, you will not now be making these payments. This means that you could, potentially have more money each month – and this could also affect your benefits.
Means-tested benefits
In the UK, some benefits are means-tested – meaning that they are only available to people who do not reach a set income and/or capital threshold. If you release some of the equity in your home, there is the possibility that your income and/or capital could exceed this threshold and therefore affect the benefits that you are eligible to receive.
Some of the benefits that are means-tested include:
Universal credit
This is the benefit that was bought in to replace several other benefits including child tax credit, income support, income-related employment and support allowance (ESA), housing benefit, income-based jobseekers allowance (JSA), and working tax credit. For Universal Credit, you must declare your savings, although if you do not have more than £6,000, your Universal Credit will not be affected. If you have between £6,000 and £16,000 in savings, your Universal Credit will be affected, and if you have over £16,000, your Universal Credit will be stopped.
Council tax reduction
Council tax reduction is only available to people who have less than £16,000 in savings.
Savings for benefits assessments
When it comes to being assessed for benefits, the amount of savings that you have are taken into account. Some people have money tied up in several different accounts, investments, and assets, some of which are included in the means testing and some which are not. The savings that are included in the means-testing include:
- Money that is in bank or building society accounts (including accounts that are interest-free)
- Cash
- National Savings accounts
- Stocks and shares
- Premium bonds
- Money in tax-free childcare accounts
- Income bonds
- Any property that is owned – other than your home
Any capital that you have is valued at the current market value, but a percentage of 10% will normally be deducted for selling costs. Any money or assets that you own jointly with someone else will normally be assumed to be split equally unless otherwise stated.
This means that many aspects are not included in the benefits assessment. These include:
- Any property that is occupied by someone who is considered to be a ‘close relative’ if they are incapacitated or are of a pension credit qualifying age.
- The value of your former home for up to 26 weeks if you have left because of a relationship breakdown, or indefinitely if your former partner is living there as a lone parent.
- Any money from insurance claims if used to repair or replace, for up to six months.
- The value of a property if you have acquired it to live there, make repairs to live there, or are trying to sell it, for up to 26 weeks.
- The proceeds of the sale of your home if you are planning to buy another home for up to six months.
- Any money from loans or grants that are intended to be used for improvements or essential repairs.
- Possessions such as a car, jewellery, or furniture.
- Uncashed life insurance policy.
- Payments from Social Fund grant.
- Pre-paid funeral plan value.
- Business assets.
- Charge for currency conversion if capital needs to be exchanged for sterling.
- Certain state benefits arrears.
Contact Waldrons Solicitors
Here at Waldrons, we have a team of experienced solicitors who can help you. Contact us today to discuss your circumstances.
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