Late Husband's Pension affecting benefits, advice please

[cynical78]

Hi all, I wonder if anyone could help me considering I have little to no knowledge of how any of this works.

My husband passed away in 2010 and I received a few payouts from various pensions he held, all tax free lump sums of varying amounts that didn't affect my benefits at all. However, there was one I found much much later (last year) and have been in the process of claiming it since then. I had a letter come through today outlining how much I would be receiving and it says that I have to pay tax on the lump sum because my husband died before 2012.

The amount being paid is just short of 15k and I was over the moon because I could finally pay off the debts he left behind in my name that have defaulted and in the case of two of them, I have CCJ's. I claim widowed parent's allowance and this is topped up with child tax credits. If this payment is taxable, is it likely that I will lose my tax credits next year, or worse yet, owe them money and be in a worse position that I'm in now?

I just want to know where I stand really and whether it would be better in the long run to turn the pension payment down. If I lose my child tax credits then I'm worried I'll also lose my housing benefit and council tax benefit and be up poop creek without a paddle.

I just want to make it clear that I don't enjoy drawing benefits nor intend to live on them forever but I do what I have to do to keep a roof over my kids heads. I've been stuck for so long in a benefits rut because working would have left me worse off and this finally felt like a new, debt free start .

Any help would be appreciated

I think you would be best off going to CAB tbh.

Above £6k, you lose some benefits; above £16k you can't claim income based benefits at all. So your housing/council is likely to be greatly reduced, and I'd imagine tax credits will be reduced too.

However, you can't turn the payment down either - they'll treat you as if you still have it. It's against the rules to turn down income to remain on benefits.

Essentially; you'll keep some benefits but not much, you'll need to live off the £15k for a reasonable amount of time. You probably can't use it to clear the debts. Set up repayment plans at an affordable rate for them. Start with the CCJs.

Thanks for the replies guys. I have already started working out repayment plans with most of them and paid off one or two. the bigger ones, however, are insisting on amounts that I really can't afford. I'll work it out somehow.

Do you have any idea why the pension payments I had after he died were tax free and didn't affect my benefits but this one is taxable. I didn't understand what the relevance of him passing before 2012 was. Is there a time limit on claiming them tax free?

The current position is that if he was under 75 when he died the pension can be paid to you as a lump sum tax free if it is claimed within 2 years of death. If it is not claimed within 2 years then the lump sum is liable to a tax charge of 45%. So in that sense it is taxable, but should not necessarily affect your personal tax position. Best check though via CAB or similar.

Hi I'm a benefits assessor for housing benefit and council tax support - Anchor is incorrect that they won't let you spend it on debts. When spending capital it comes down to what's reasonable - buying 3 cars when you don't need 3 cars is unreasonable. Paying off debts is reasonable and pretty much what we expect people to do when they get a large amount of money.

Thanks all, I'll see if I can get a CAB appointment for next week. I don't mind losing benefits if it comes to that, I'm just worried I'll be worse off than I am now. I struggle to make ends meet as it is. Thanks again for all your advice folks.

Anchor is incorrect that they won't let you spend it on debts.

Not around here... Minimum payments are fine; anything more than that is treated as deprivation of capital (unless the person was making more than minimum payments before, then their 'usual' payment can be maintained).

Cynical It's probably best to speak to CAB then.

Re your debts and how much they'll accept - if we can help with that, shout. They can be pushy but they can't have what you don't have. It's so horribly stressful, and that's without your loss to contend with. I'm sorry