Income related ESA and equity release to buy out ex partner from home
It would be great if you can help with my query.
My client bought a property with her ex. Ex put 15% in. When son graduates uni, ex will get 15% back according to terms of divorce. Client has a mortgage with 4 years left. Client has been looking into getting a lifetime mortgage - would get £70,000 to pay ex, would then pay interest on mortgage for its duration. If she went to care home, or died would have to pay back.
This will allow her to stay in her home without having to sell her home and move elsewhere. She would immediately give the £70,000 to her ex.
Client wants to know how this will affect her income related ESA. Will the £70,000 be treated as notional capital if she immediately pays it to her ex?
CPAG 20/21 says the following which implies that the £70,000 might be ignored:
A loan to you usually counts as money you possess and therefore counts as capital. However, you can argue that a loan you hold for someone else should be disregarded if it is your own asset but you have expressed a clear intention that it is for someone else’s benefit and and renounced its use for yourself.
p508. Deductions are made from the gross value of your capital for any debt or mortgage secured on it.
Can anyone confirm that her ir ESA will be unaffected if my client goes down this route?
Many thanks![ Edited: 22 May 2020 at 05:27 pm by biscuits ]
is the £70k the exact share of the ex in the home? Why does she want to do this?
You should be very careful with this enquiry because advising on the merits of taking out a lifetime mortgage is financial advice which we’re not regulated to give.
What I can say about it is, in my experience and personal opinion, these types of equity release products should generally be the option of absolutely last resort as you’re effectively giving away a large share of your equity in your property compared to it’s market value.
See our factsheet Equity release in particular section 3.8 where it is noted:
Money received from equity release can affect your entitlement to means-tested benefits such as Pension Credit, help with health costs and Council Tax Support (Council Tax Reduction Scheme in Wales).
FCA-authorised equity release advisers should consider this and your future plans and needs when assessing whether an equity release product is suitable for you.
If a firm has insufficient knowledge of means-tested benefits to reach a decision, they must refer you to an appropriate source of information such as the Pension Service, HM Revenue and Customs, or Citizens Advice.
and also section 4 which explains more about lifetime mortgages.
Thanks - she wants to do it as she doesn’t have £70,000 which is her partner’s share, so she will have to sell her home and move to a smaller one otherwise and I think the property has been specifically adapted for her disability
Thanks I looked at the factsheet but it doesn’t answer this specific question unfortunately
I would never be as bold as to confirm that any significant disposition of capital won’t affect somebody’s benefit. There is always the possibility that somebody at DWP will get a bee in their bonnet and benefit could be suspended or stopped virtually indefinitely whilst these things are sorted out. It is always something which carries a risk.
But I think really if you have a situation where somebody is taking out a loan for the sole purpose of discharging a divorce settlement and then paying the funds over to their ex in full in line with that settlement, it is very difficult to see how this could be sustainably analysed as a deprivation resulting in notional capital.
Agree with Elliot