If you’re supported by state benefits when you reach 55 years old, you may be tempted by an equity release loan (we previously wrote a detailed article about Equity Release age criteria).
The prospect of a tax-free lump sum is appealing as it could provide much-needed cash to help you, but it will likely have an impact on your state benefit entitlement.
Will My State Benefits Be Impacted by an Equity Release Loan?
An equity release loan can impact any state benefits you receive. Many state benefits are limited or stopped if you have £16,000 or more in capital, cash or reserves, and spending your Equity release to avoid losing benefits can cause legal issues.
A successful application for an equity release loan can impact any state benefits you receive. Many state benefits are limited or stopped if you have £16,000 or more in capital, cash or reserves.
Continue reading to understand in detail how Equity Release could affect any benefits you are receiving.
- – The reasons to release Equity from home
- – Equity Release schemes and your pension
- – Equity Release interest rates
- – Equity Release Solicitors costs
We update all our guides regularly. If you are researching Equity Release and we haven’t got an exact guide that helps you, keep coming back as we update daily.
Entitlement Criteria and Equity Release
Many state benefits are means-tested, which means you’re only entitled to them if you meet certain criteria. The government will take into account any income you have, but also your savings and other capital.
So, if you’re considering an equity release loan, chances are your capital will grow significantly, which could have an impact on the means-tested benefits – you may see them lowered or stopped completely. That’s why it’s important you get the help of a professional financial adviser who can help you weigh up whether it’s better to remain on benefits or take the cash lump sum of your equity release loan and use that to support you.
Which Benefits Are Affected if I Release Equity?
Not every benefit is means-tested. If you receive disability benefit or any contributory benefits, these won’t be impacted.
However many are. The most common amongst over-55s are council tax reduction, and pension credit.
Council tax reduction is only available to anyone with less than £16,000 in capital, so your equity release could mean you have to pay the full amount every month.
With your pension, equity release won’t impact state pension – you’ll still get the full amount every week. But if you were entitled to guarantee credit – the benefit that tops up your pension by almost £40 a week – this’ll be impacted as soon as you have £10,000 in capital. For every £500 in savings over than amount, you’ll lose £1 a week. So if you have £20,000 you’ll lose out on £20 per week, or £1,040 a year.
Before you reach state pension age, you might be entitled to Universal Credit, which replaced various benefits such as income support and jobseeker’s allowance. Again, as soon as you’ve £16,000 in capital you’ll probably find out you’re no longer eligible.
Spending the Money First
There is some good news – if you take an equity release loan and use it to pay off debts, or improve your home, it won’t impact your state benefits. If, however, you spend it frivolously and don’t declare it to the benefits office, you’ll be committing fraud – a criminal offence.
As always, you should speak to a professional adviser for help.
Quick Equity Release FAQs
How Can Money Savings Advice Help You With Releasing Equity?
Here at Money Savings Advice, we have partnered with some of the UK’s leading Equity Release brokers. They have already helped thousands of people get the best Equity Release deal and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.