Means-Tested Benefits
This is an area of critical importance when you’re planning to release money from your home. If you’re already in receipt of benefits, your entitlement may be affected. If you’re not claiming benefits now, your future ability to claim benefits could be affected.
Your Equity Release adviser will recommend they carry out a software check on your circumstances, don’t worry, we won’t approach the DWP! We use a piece of software to calculate your entitlements. I would suggest you look at:
https://www.gov.uk/benefits-calculators
Here there are three benefits calculators that you can use to check for yourself. I use the middle one, entitledto.
Here are two of the main areas for consideration.
Pension Credit.
This can have two parts: Guaranteed Credit tops up your weekly income to a guaranteed minimum level:
£173.75 if you’re single, or £265.20 if you’re a couple.
Savings Credit is another component, giving extra money if you’ve got some savings or your income is higher than the basic State Pension. It’s only available to people who reached State Pension age before 6 April 2016. If you qualify you could get up to:
£13.97 extra per week if you’re single or £15.62 if you’re a couple. (All figures correct July 2020).
However, if you have savings of more than £10,000 the DWP will calculate that for every £500 above £10,000 they will deem that you have an extra £1.00 of weekly income. The more capital you hold the more “deemed” income you have. Ultimately your eligibility for Pension Credit will cease.
For example, you currently receive £35.00 per week pension credit to bring your income up to £265.20 as a married couple. You release £30,000 for home improvements and a holiday that you put in your bank account. £30,000, divided by £500 is £60.00 and the DWP would consider that as extra “deemed” income. As this would take you above the £265.20 per week as a couple, you’d no longer be entitled to pension credit.
Council Tax support
Each local council is responsible for operating their own Council Tax Support scheme so the amounts of support given across the country may vary. The amount of Council Tax Support you will get depends on many factors, including:
• Which benefits you receive
• Your age
• Your income
• Your savings
• Who you live with
• How much Tax you pay
You may get more Council Tax Support if you receive a disability or carers benefit.
If you receive the Guarantee Credit part of Pension Credit you may even get your Council Tax paid in full. If you don’t get Guarantee Credit but you have a low income and less than £16,000 in savings, you may still get some help.
Pensioners still need to pay Council Tax but may get a discount if they live alone, or depending on their situation be entitled to Council Tax Support.
This is why it’s important to get the amount of the release right in the first place. However, where the capital being raised is to pay off debt, such as mortgages, for arranging estate planning and setup costs, these amounts can be disregarded in the calculation.
This is a complex area and it’s worthwhile discussing your circumstances with the DWP directly.