I’m on a low income and rely on benefits, although I was fortunate enough to purchase my council house back in the early 1990s. Now it’s my only asset and I’m thinking about releasing equity from my home to help make ends meet. Will Equity Release affect my benefits in any way?
- Tom Conner
Equity Release and State Benefits
There are certain means-tested state benefits that might be impacted by your decision to release equity from your home. Means-testing involves the government looking at your income and capital before granting you the benefit payments.
As Equity Release can be accessed from the age of 55, there are two sets of means-tested benefits you might be concerned with: working age and retirement benefits. Should you be concerned you may lose state benefits it is best you speak to an Equity Release specialist to ensure you are making an informed decision before deciding to proceed.
Working Age Benefits
Available for those between 16 and Pension Credit qualifying age who:
- are not in full-time work;
- have no/a low income;
- have no more than £16,000 in savings; and
- are not eligible for Jobseeker’s Allowance or Employment and Support Allowance.
Income-based Jobseeker’s Allowance
If you’re unemployed, you may be entitled to income-based Jobseeker’s Allowance (JSA) if you can’t claim contribution-based JSA because you haven’t made sufficient National Insurance contributions.
To qualify, you need to work less than 16 hours a week and have less than £16,000 in savings. If you have a partner, they must work less than 24 hours per week.
Council Tax Reduction
In England, each local authority runs its own Council Tax Reduction scheme which could see your Council Tax bill reduced by up to 100% if you’re on a low income and/or receive benefits.
Working Tax Credit
You could get Working Tax Credit if either of the following apply:
- You’re aged from 16 to 24 and have a child or a qualifying disability
- You’re 25 or over, with or without children.
You must be in paid work for a certain number of hours per week and have an income below a certain level.
There are a number of means-tested working age benefits, but these (with the exception of Council Tax Reduction) will gradually be rolled up into the means-tested Universal Credit over the coming years.
Retirement Age Benefits
The means-tested benefit pensioners receive is Pension Credit. Pension Credit is a means-tested benefit designed to provide for basic living expenses and can be paid on its own or on top of other benefits to bring a household’s minimum income up to a certain threshold.
The first £10,000 of capital (excluding a home occupied as a sole dwelling) is ignored. While there’s no upper capital limit, any capital over £10,000 is treated as producing an assumed income of £1 for every £500.
There are two elements of Pension Credit: the Guarantee Credit and Savings Credit. It’s possible to receive one or both.
However, Savings Credit has been phased out. It’s only available to those who reached State Pension Age before April 6 2016 and who were receiving Savings Credit before this date.
Guarantee Credit is available for those at qualifying pension credit age and over. It’s designed to bring household income up to £159.35 for a single person or £243.25 for couples. If someone receives Guarantee Credit then they are also entitled to full eligible Housing Benefit and Council Tax Reduction.
Drawing an income from your house or receiving a cash lump sum could affect your entitlement to any of the above means-tested benefits. This is an important consideration and your adviser will discuss this with you at the point of application.