By Tom Philips at August 23, 2023

Does Equity Release Affect Council Tax Support?

Taking out an equity release loan is a huge decision, which can have a huge impact on your financial situation.

For example, taking out an equity release loan might impact your eligibility for means-tested benefits, such as council tax reduction.

If you are wondering ‘Does equity release affect council tax support?’ then continue reading.

Does equity release affect council tax support – Equity release explained

There are a number of different equity release products and plans which allow you to release money from your home, tax-free.

The ‘money’ you are referring to is the equity and cash that is tied up in your home.

This equity is a combination of things, including your initial house deposit, your monthly mortgage repayments minus any interest and the amount your house has increased in value.

Equity release plans allow you to release money from your home, without having to pay it back until after you pass away or move into a care home. When this happens, your house will be sold by your next of kin.

This money will then be used to pay off the entire loan in one large, lump sum. Usually, your house would have increased in value significantly which means that the sale of your house will cover the cost of the loan.

The best thing about taking out an equity release loan is that there are very few restrictions on how you can spend your equity release funds.

Most people spend their money on home improvements, making their home more suitable for them in their old age [1].

However, others might choose to spend their equity release money on a nice holiday, a new car, a better lifestyle in their retirement or helping loved ones with further education or a house deposit.

Whilst the amount you receive will be tax free, you will be charged interest on your loan.

As the loan lasts for as long as you live, this will grow into compound interest. This means that the interest will quickly grow and compound, adding significantly to the overall loan amount [1].

If you’re wondering ‘Does equity release affect council tax support?’ and would like more information, then talk to our team on 0330 058 1579.

Different kinds of equity release

Lifetime mortgages are the most common type of equity release plan, which allow individuals the chance to remain living in their own home for as long as they want. With lifetime mortgages, you will remain the sole owner of your property [2].

You are charged interest in lifetime mortgages, which will grow into compound interest over time. You won’t have to repay your loan until after you pass away or move into a care home, although you can choose to do so if you want to [2].

Home reversion plans work a lot differently to lifetime mortgages, and are not as popular.

Unfortunately, in order to gain access to your money through a home reversion plan you have to sell a certain percentage of your property to your chosen lender. Whatever you sell it for, expect it to be less than the market value [2].

If you’re wondering ‘Does equity release affect council tax support?’ and would like more information, then talk to our team on 0330 058 1579.

Does equity release affect council tax support?

Yes, taking out an equity release loan will have an effect on any council tax support you currently receive or are due to receive in the future.

This is because council tax support is a means-tested benefit, and all means-tested benefits are affected when an individual takes out an equity release plan [3].

What are means-tested benefits?

Means-tested benefits are any form of financial support an individual receives from the Government or their local council, which is based on your eligibility. Your eligibility usually looks at your income and your savings.

With most means-tested benefits, there is a universal threshold. If you are under this threshold then you might be approved for some form of benefits. If you are over this threshold then you might not receive any benefits at all [4].

There are numerous forms of means-tested benefits, including Universal credit, Pension credit, Job seekers allowance or Council tax reduction. Most means-tested benefits examine your current income, as well as the amount you have in savings or in assets [4].

If you’re wondering ‘Does equity release affect council tax support?’ and would like more information, then talk to our team on 0330 058 1579.

Which benefits are not affected by equity release?

It is important to remember that only means tested benefits are affected by equity release. This means that if you receive support which is not based on your income or savings, then this will still continue even after taking out an equity release loan.

For example, if you receive a state pension then your equity release loan will not affect this. However, if you receive pension credit then this will be affected. Likewise, disability benefits and personal independence payments (PIPs) are also not affected by taking out an equity release loan.

If you’re wondering ‘Does equity release affect council tax support?’ and would like more information, then talk to our team on 0330 058 1579.

What counts as savings when it comes to means-tested benefits?

When applying for any means-tested benefits, your income and savings will be taken into account. It is important to understand that savings not only includes the cash you have in your current savings account, but any national savings accounts, income bonds, stocks and shares, properties and premium bonds [5].

When being assessed for any means-tested benefits, your savings (including any properties, stocks or shares) will be assessed at their current market value, rather than any future potential market value [5].

If you own a property with someone else, or share any savings accounts or bonds with someone else, then the state will generally assume that you own an equal share of this capital.

Whilst it is important to understand what counts as savings, it is equally as important to understand what is not considered as savings. For example, assets such as cars, furniture or jewellery will not count. Likewise, business assets will not count as savings, and neither do any pre-paid funeral plans [5].

If you’re wondering ‘Does equity release affect council tax support?’ and would like more information, then talk to our team on 0330 058 1579.

How to check my eligibility for state benefits such as council tax support?

You are eligible for council tax support if you are responsible for paying your council tax bill and are currently on a low income, whether that is from benefits or a low salary.

If you and your partner (who you must live with) have less than £16,000 in your savings account and in assets, then you might be eligible for council tax support.

You will still also be eligible for council tax support if you receive other benefits such as Universal credit, as this only goes to helping you pay your rent and for food, as opposed to helping with your council tax bill.

You will not be eligible for council tax support if you are an asylum seeker or have been granted refugee status. You will also not receive council tax support if you are a sponsored immigrant, have gained access to the UK illegally or are living here illegally [6].

If you are unsure as to whether you are eligible for any means tested benefits, including council tax reductions, then there are a number of ways that you are able to check. For example, you can use the Gov.UK website, or the Age UK means tested benefits calculator.

If you’re wondering ‘Does equity release affect council tax support?’ and would like more information, then talk to our team on 0330 058 1579.

Does equity release affect council tax support – How can Equity Release Warehouse help?

If you are still wondering ‘Does Equity Release Affect Council Tax Support?’ then talk to someone at the Equity Release Warehouse team.

If you are equally as confused about whether or not you currently receive council tax support, then you should check on the Gov.UK website or by ringing your local council and authority to ask.