AIBU to question whether UC rules create incentives to limit earnings?

[Justwonderingum]

Unpopular topic, I know. But I'm trying to understand how UC works. It looks to me like there is a huge gap where you are much better off limiting the hours you work, paying yourself less from your company, or even over paying into your pension as you can claim the difference in UC. Also claiming UC means you pay less for many other things, and will include free school meals soon too. So AIBU to wonder if this really is the case or are these loopholes closed? A quick play seems to suggest that even on a household income of £70000 can claim over £1000 a month, assuming 2 plus kids,including one with lower rate DLA

How would you be better off? You have no housing costs but would rather rent and get UC? UC would class that as deprivation of assets. You sound like you are in a privileged position. Don't be daft.

When the kids are too old to be on the claim she would regret giving up the rental income.

I think the poster meant the UC she would get would be more than the rent she gets for her SECOND mortgage free home. So if she sells her second home, disposes of the money from that sale ( goodness knows how whilst not breaching deprivation of assets rules) and then claims UC she will be better off including FSM and Free music lessons ? Why anyone would want to do this is actually quite baffling.

Yeah I realised that. Yeah UC would be all over that money.

I doubt she would tbh, no housing costs would reduce her claim, she doesn’t say if she works, but if she doesn’t then she’s be subject to benefit caps and regular meetings at the job centre. If she does her earnings may well reduce her claim to almost nothing.

I’d cut my right arm off to be in the position where I had two houses mortgage free and could let one out as passive income. Even if I still had to work to keep afloat. It genuinely keeps me up some nights wondering where I’ll end up living when the kids are older.

Money from a rental property is not the same in terms of having to give up your time with your kids in order to earn money?

@mgup if you were renting according to Entitled to you would get around £900 UC a month. It's an estimate and I've assumed you are paying a pension

Sorry, not to drip feed but the reason I’ve looked into it is because divorce proceedings may mean I have to sell the rental but I was surprised to see I’d be better off (currently stretched each month).

Sorry, I’ve updated to add I’ve looked into this as I may have to sell the rental.

I do work as well but low income and a single parent with no financial support from ex.

If you sell the rental, you’ll have capital they'll
expect you to live on.

You may well be entitled to some UC once the capital has gone

That would be gone rehousing me and ex

You are just 45p out of every £ better off surely?
So if you work and earn £100 you get £45 of it to keep

I’m genuinely not sure of the confusion?

If you earn £100, you get to keep all
of it. No one is helping themselves to your wages.

it’s your UC award that reduces.

so at the end of the month you have your £100 wage and your £45 from UC, instead of just your £100 from UC. (Figures aren’t accurate obviously, just examples).

so yes, you’re £45 better off for every hundred pounds you earn than if you didn’t earn anything at all. Plus you won’t be subject to the benefit cap.

This explains the OPs point about people seeming to get better of working less....

The Verdict: You are "better off" for every hour you work up until 39.5 hours. However, the most "efficient" balance is often around 20–25 hours. Beyond that, the combined bite of Tax, NI, and the UC Taper means you are working a lot of extra time for a relatively small increase in actual spending money, especially once you factor in paying full Council Tax.

You’re likely still paying full council tax at 20-25 hours, I’ve never had a reduction due to my income.

I work 37.5 hours now and have more money at the end of the month than when I worked fewer hours. The argument that you’re not ‘much’ better off, or it’s not worth it, is individual but doesn’t negate the fact that financially you have more.

edited to add, if I worked 40 hours, I’d still be better off - I’d have to have a net income
of £4399 before my award went to £0

I also did not realise quite what a difference it makes to own your house. A mortgage doesn't make you rich, and the children don't own the house, but they are in a household with £900 less disposable income a month than another family earning the same. Whilst their friends in rental properties will get UC and therefore all associated savings. They will undoubtedly feel worse off and on a month to month basis less likely to be able to afford basics. And yes you could say sell the house then, but in many cases after costs that won't free up much capital. And often they were just trying to do their best, buying property, with what they knew or thought they knew at the time.

@MyLuckyHelper would you therefore stop earning progression at £4350? As you will lose free school meals, and other reductions based on being a recipient of UC?

Rent money isn’t disposable income.

and the difference is, the mortgaged people will own a valuable asset in the future. And have the security of having a stable home, often at a far lower cost than private renters are paying.

I agree it’s tough for some, but we absolutely cannot start paying mortgages for welfare claimants.

Also you would be on about £75k by then, so would also lose child benefit

But mortgage still has to be paid. And maintenance costs of home etc. You say it will be a valuable asset but you don't actually know. Point is on month by month basis mortgage payer much worse off financially and so are their children. Who don't actually own the house themselves

Would I stop earning progression?

As in would I choose to stop earning more? No, I’m happy to be self sufficient if I could afford it. If I was earning £4350 a month, I’d have no need for FSMs. I don’t get any other discounts for being on UC. I don’t even get FSMs at the moment, but will as of September.

I don’t know? A house is a valuable asset. They almost always appreciate in value.

I think families with children are the ones that find it hard to drive in working but good or not.
I did the calculation just to see how a single person with no children would lose/gain and the amount you could earn is much much lower obviously before you would lose all UC
£1,845.27 take home a month and the UC would be 0

Eh?

You have not got it right, you're telling people they'll get 45p for every £1 they earn. That's absurd. Each person gets an amount based on their personal circumstances, these are elements that make up their total entitlement and this will vary from one household to another. If yours works out at 45p per £1 you earn, good for you but it's very plainly stated on any page that explains how UC works that the payment is made up of elements not some arbitrary 45p. Then for every £1 they earn above their personal allowance (if applicable), 55p is DEDUCTED. This is clearly where you've become confused.

It is worrying that people like you can come on boards like this and claim to be offering advice when you don't understand what you're talking about. It is complicated and it's ok that you don't understand it, many people don't, but you shouldn't be pretending that you do. There is absolutely no incentive to work above a certain amount for some people DEPENDING ON THEIR CIRCUMSTANCES. Pretending otherwise means the issue doesn't get addressed.