Will an Equity Loan "gift" affect Pension Credit?

pixie2014

My mum has offered my partner and I an equity loan to help us purchase our first home. She completed all the forms and we discussed everything with a financial advisor. I questioned whether my mum's Pension Credit would be affected due to the loan. The financial advisor advised me that it wouldn't be as the money won't stay in the account - it will be gifted straight out. We are now experiencing problems as I asked the advisor to reconfirm that the benefits wouldn't be affected (several weeks after the initial meeting and after signing the forms with a solicitor) and the advisor has said we need to check if my mum has an AIP (Assessed Income Period) - which she doesn't. I am really confused as this was never mentioned before. So my question is...
Are means-tested benefits (notably Pension Credit) affected when an equity loan is gifted straight out of a bank account? I know if kept in a savings account it would be, but the funds aren't staying in the account.

[Deleted User]

pixie2014 said:

My mum has offered my partner and I an equity loan to help us purchase our first home. She completed all the forms and we discussed everything with a financial advisor. I questioned whether my mum's Pension Credit would be affected due to the loan. The financial advisor advised me that it wouldn't be as the money won't stay in the account - it will be gifted straight out. We are now experiencing problems as I asked the advisor to reconfirm that the benefits wouldn't be affected (several weeks after the initial meeting and after signing the forms with a solicitor) and the advisor has said we need to check if my mum has an AIP (Assessed Income Period) - which she doesn't. I am really confused as this was never mentioned before. So my question is...
Are means-tested benefits (notably Pension Credit) affected when an equity loan is gifted straight out of a bank account? I know if kept in a savings account it would be, but the funds aren't staying in the account.

I'm slightly confused as to what's happening.  Is your mum taking out a loan in order to gift you a deposit to buy a property rather than your mum making a loan to you using her savings?

ThriftyMister

As the funds are not remaining in her accuont then no, it is not assessible in terms of pension credit.

If she keeps over £10,000 in liquid assessets (e.g. bank account and savings accounts) then this will be used in asessing her eligibility to pension credit. As she won't be keeping over £10,000 in liquid asessets, it isn't used to asess her entitlement.

... Is your mother borrowing the funds as a "Lifetime Mortgage" without monthly payments, or is she taking it out as a secured loan / repayment mortgage, with fixed monthly repayments, and a fixed date on which the loan will be repaid?

pixie2014

Thanks for your feedback. Yes, my mum is taking out an Equity Loan (lifetime mortgage) in order to gift us a deposit to buy a property. She doesn't have to pay monthly instalments with the Equity Loan (it's a rollover), but there is an option to pay the interest of up to 10% every year. My partner and I will pay the equivalent monthly interest on this so it doesn't accumulate. There is no fixed date on the loan, it will run until approx 20 years or until death. 

pixie2014

ThriftyMister said:

As the funds are not remaining in her accuont then no, it is not assessible in terms of pension credit.

If she keeps over £10,000 in liquid assessets (e.g. bank account and savings accounts) then this will be used in asessing her eligibility to pension credit. As she won't be keeping over £10,000 in liquid asessets, it isn't used to asess her entitlement.

... Is your mother borrowing the funds as a "Lifetime Mortgage" without monthly payments, or is she taking it out as a secured loan / repayment mortgage, with fixed monthly repayments, and a fixed date on which the loan will be repaid?

Thanks for your feedback. Yes, my mum is taking out an Equity Loan (lifetime mortgage) in order to gift us a deposit to buy a property. She doesn't have to pay monthly instalments with the Equity Loan (it's a rollover), but there is an option to pay the interest of up to 10% every year. My partner and I will pay the equivalent monthly interest on this so it doesn't accumulate. There is no fixed date on the loan, it will run until approx 20 years or until death. 

kaMelo

ThriftyMister said:

As the funds are not remaining in her accuont then no, it is not assessible in terms of pension credit.

If she keeps over £10,000 in liquid assessets (e.g. bank account and savings accounts) then this will be used in asessing her eligibility to pension credit. As she won't be keeping over £10,000 in liquid asessets, it isn't used to asess her entitlement.

This has the potential to go wrong in many different ways.
Taking out an equity loan will mean that money is used when assessing your mother for all means tested benefits that she is entitled to. Gifting it to you will not change that, it could be classed as deprivation of capital and she would be assessed as if she still has it even though she's given it to you and you've spent it. I don't know whether this position would change however if the pension credit was guaranteed.
Benefits are complex and whilst this is mainly about a loan there is a benefits element too. I would suggest you re-post this question on the benefits board. There are some very knowledgeable people on there who could clarify things and potentially prevent a very expensive mistake.

MEM62

pixie2014 said:

ThriftyMister said:

As the funds are not remaining in her accuont then no, it is not assessible in terms of pension credit.

If she keeps over £10,000 in liquid assessets (e.g. bank account and savings accounts) then this will be used in asessing her eligibility to pension credit. As she won't be keeping over £10,000 in liquid asessets, it isn't used to asess her entitlement.

... Is your mother borrowing the funds as a "Lifetime Mortgage" without monthly payments, or is she taking it out as a secured loan / repayment mortgage, with fixed monthly repayments, and a fixed date on which the loan will be repaid?

Yes, my mum is taking out an Equity Loan (lifetime mortgage) in order to gift us a deposit to buy a property. She doesn't have to pay monthly instalments with the Equity Loan (it's a rollover), but there is an option to pay the interest of up to 10% every year. My partner and I will pay the equivalent monthly interest on this so it doesn't accumulate. There is no fixed date on the loan, it will run until approx 20 years or until death. 

This is a bad idea in so many ways I don't even know where to start.  Apart from the potential disadvantages to your mother in respect of he current income you are dragging her into sharing your future financial risks - such as if one you lost your job you separated/divorced.  And don't say it won't happen - it can and it does.   Family and money should not be mixed.  It would be better for you to stand on your own two feet in respect of the house purchase and let her enjoy her retirement unencumbered by this burden.

phillw

pixie2014 said:

Are means-tested benefits (notably Pension Credit) affected when an equity loan is gifted straight out of a bank account? I know if kept in a savings account it would be, but the funds aren't staying in the account.

I would say yes, it would affect means tested benefits if the DWP found out.

If it were that easy then nobody on means tested benefits would ever have any savings in their own name. Giving the money away would most likely be treated as deprivation of capital & the benefits re-assessed as if she still had the money.

I don't think the financial adviser is supposed to have given you any benefits advice.

fatbelly

You really need a benefits specialist to answer this question. 
There is some info here
https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/fs65_equity_release_fcs.pdf
but this is a really specialised matter that has the potential to go badly wromg

Keep_pedalling

How old is your mother? The only situation where she would not have to report this is if she has an indefinite assessed income period, which she would only have if she was over 75 in April 2016 after which point no new assessed income periods were set. 

ALIBOBSY

phillw said:

pixie2014 said:

Are means-tested benefits (notably Pension Credit) affected when an equity loan is gifted straight out of a bank account? I know if kept in a savings account it would be, but the funds aren't staying in the account.

I would say yes, it would affect means tested benefits if the DWP found out.

If it were that easy then nobody on means tested benefits would ever have any savings in their own name. Giving the money away would most likely be treated as deprivation of capital & the benefits re-assessed as if she still had the money.

I don't think the financial adviser is supposed to have given you any benefits advice.

Any kind of benefit review will usually ask for all bank statements and the money going in then out would raise a red flag and would very likely be treated as deprivation of capital. As long as the "capital" is in the main residence the claimant lives in it is disregarded, as soon as it is liquidated via a loan or by selling it is no longer disregarded. I worked at the DWP over 10 years ago now and never did pensioner credit but this could easily back fire on your mother. 
TBH as  mum of 4 whom I love more than anything I still wouldn't do this. I would give them every penny we have (as hubby and I often have lol) but this is a recipe for disaster and future upset. Good luck whatever you all decide anyway.