A cautionary tale regarding Tax credits.
Hello,
New to this site, but just wanted to see what people thought of this and perhaps help others avoid this issue.
My girlfriend (GF) divorced from her husband some time ago and their solicitors brokered a deal whereby the house that they had a joint mortgage (MG) on would be transferred into her sole name and he would keep his substantial pension and savings to himself. The MG was fairly new and he hadn't paid a great deal into it, but my GF was able to keep the house so that was fairly straight forward. Despite this, the legal fees for their lengthy divorce were high.
My GF decided to remortgage (RM) to cover the legal fees, pay off a few other things that had built up/been left by her ex, and originally intended to have some work done on the house. She was now divorced and claiming tax credits, so she checked if remortgaging was okay with the Tax credit people. They said the lump sum of money wasn't a problem and she could use it as she saw fit (holiday, extension, new car etc.) but they advised her to declare interest accrued on the sum. My GF didn't expect to be holding onto the money for long as it was earmarked for other things, so little interest or profit was anticipated.
The property had been purchased for a really good price, and due to various factors including its desirable location, was soon valued at a lot more than the original price paid for it (almost double). The solicitors arranged the RM, took their fees and transferred the rest to my GF. Despite the RM there is still a large amount of equity left, and the MG will be paid off in 10 - 12 years time as my GF has always tried to top her MG payments up with spare cash.
A really close friend (FR) of my GF was also going through a tough time, and had been left in a quite desperate financial situation by her ex, to the extent that she might lose her house.
My GF has a kind heart and offered to lend her FR a large sum of money to clear her debts so that she could stay in her home (There was no way her FR could take out a loan from the bank or renegotiate the MG).
My GF lent her FR the remaining money from the RM (instead of using it for her house etc.). The agreement was that her FR would then pay her back an amount she could afford each month.
So far so good...
However...
My GF has now received a letter from Concentrix, on behalf of HMRC, informing her that they think her payments may be wrong and have so far asked for her bank statements from the last tax year.
From what I can see this company will look at these statements and will question why my GF has been receiving cash deposits (made by her FR). Having looked at a number of forums it would seem that they will not be interested in the reason why (as detailed above) but will consider this to be fraudulent. My GF was genuinely trying to help her friend, and thought that as she was told she could use the money from the RM as she saw fit, lending it to someone (and then having it paid back) wouldn't be a problem.
Unfortunately it doesn't look like this is the case, so I suspect my GF will be looking at a large penalty/fine. She is now worried sick (and she has always been very savvy with her finances) plus her friend feels terrible.
Depending on how much the fine/penalty is, I may be able to help, but it seems that giving money to a person on tax credits will only cause more damage (even if it is to make a monthly penalty payment to HMRC).
It was always intended as a good deed, but unfortunately this will likely cost my GF dearly.