Divorce settlement and tax credits

[Mybloodycat]

So, I have just received my final payment for my divorce, which will be used to buy a house.

However I am receiving tax credits and I am unsure when/if I declare the interest on them?

Obviously interest rates are rising and so are saving rates, but my worry is that as soon as I buy a house that’s all gone, however Tax credits will view the interest as income and drop my payments for next year, leaving me in a situation where I probably won’t have enough income as these were not long term savings that I could use to live on if you get me?

Currently I’m getting about £300 pm in interest which is not being used, it will also go towards a house. I don’t know if I should just leave the rest of it in my usual bank account to prevent getting too much interest or just continue as I am, putting it in easy access savings?

Like I said, it’s not long term, I plan on this being gone as soon as I can buy a house, but I’m also keen not to fall foul of anything either. I can’t tie it up in an ISA as it will all be needed shortly.

TIA

It's part of your annual income, April to April, but obviously may lead to overpayment in the meantime. You can change your declared income in the meantime to avoid that.

The first, I think £300, is ignored so you don't declare it when you renew (check form, I can't remember the exact amount).

You can put it into premium bonds if you want to avoid it counting for tax credits but keep it safe.

Or overpay into a pension by £300 a month if you don't need the money to live on right now.

Tax credits will be ending pretty soon anyway. You'll get a year where you can claim uc instead then that's it, if your savings are too high

Thankyou for that. My pension is via the LEA so I’m not sure if I can overpay and it not count (if you get me)
I already have the maximum in premium bonds. On paper I have money, but I don’t because I will still struggle to afford a house round here.
I will update tax credits with the interest I have so far, probably better to do that now I guess.

You can put money into any pension, so your lea probably does AVCs or you can set up a personal pension as well. Just depends if it fits with your financial planning - you get 20% top up from the government on all pension contributions but can't access it til at least aged 55.

If you pay into a private pension outside work then you need to declare it separately on your tax credits form. There's a separate area to declare it. They then deduct it from your annual income.

When I had capital from my divorce settlement as it was proceeds from the former matrimonial home, and I intended to buy another home with it, it was all completely disregarded for 6 months.

So, technically I can arrange to overpay into my LEA pension by £300pm and that would be accepted?
Ive added it up and my current interest is £900 which is obviously going to rise.
It’s not loads, but I am a low earner and this may tip the balance for the help I rely on long term.

I only have my work pension anyway

The income disregard means any increase or decrease of £2,500 total income on the previous year is ignored.
Will your interest exceed this? (Depends when in the year you received the lump sum).
But will decrease your TCs for 23/24 regardless as they'll be based on 22/23 actual (and then income disregard applies again to that year).

If your ISA isn't fully max'd for the current year, put some in there - it can be a cash amount and doesn't have to be a fixed term - although they obviously get better rates.

Look at term fixed rates which take the income into next year rather than this (paying the interest on maturity rather than monthly) if that might help. Pushes the problem down the line, but 23/24 is the last year of tax credits anyway - so depending on the figures this might work for you).

Pension contributions can be a good call, depending on your position.

Was that with Tax credits? I’ve not earned much interest up to now, as it’s come in dribs and drabs, but now I have a large amount all in one hit
Im really worried about it as it’s a lot of money, but it’s all going to go on a house, I am not likely to have any left by April next year, so I’m rich on paper (sort of) but not rich because it’s a brief window of time) and I don’t want next April to have all help removed when I need it because the moneys gone where it was meant to go

Yes you can pay into any pension and that reduces your income for tax purposes.

It's quite complicated to arrange an overpayment into LEA pensions and takes a while. You could also ask about their AVC scheme or just open up a separate pension alongside your LEA one.

Remember you can't get that money back til at least age 55 though.

How long til you buy a house?

Typically, as I am support staff I received a payrise/back pay last month which put my wages up by 1k per year. I’m up to nearly 1k interest (although there is £300 to come off that) but fairly shortly it will trigger it.

For context at the moment my income is 16k per year with my pay rise, it was 15k but I just updated them on my rise.

If the interest continues I will exceed the £2500 soon, but I don’t know how much it will alter things.

As you can see from the wages I’m not a high earner, I just temporarily have a lot of money, the help will still be very much needed once the money is gone!!

I am properly stressed about this as I wanted it all in the summer so I could buy when lots of properties were on, but it didn’t work that way and now I have all this money causing trouble until I get a house

As soon as I can find one! The money only came this month, but finding a house in December is not easy.

Can i overpay using the interest I have earned so far?

As pp has said, proceeds from the sale of former matrimonial home DUE TO DIVORECE are disregarded if used to make an onward home purchase.

I had the same with tax credits in 2013/14. Had £80k sat in the bank from May to Nov, was crapping myself that I would go over but nothing was ever checked. There was minimal interest. Might be worth a call to confirm.

I didn’t start earning interest until July this year. A chunk paid off solicitors and I then put the maximum into premium bonds, but then interest rates really started to jump, so now I’m kind of in a pickle.

I will contact the LEA re paying the interest to them. I had planned to put about 3k in my LEA pension anyway, so that would be fine.

Im just assuming I could pay the £900 interest I have already earned into it and kind of wipe that off?

Trouble is the house wasn’t sold. My ex kept it and paid me off, but yes it’s towards a new house

If I put it in premium bonds for the children that wouldn’t be right would it? That’s viewed as something illegal I assume, especially as I will need it back shortly.

Well it was sold then - YOU sold your interest in it.

But I don't see how this is relevant, capital isn't counted for Tax Credits - only income (ie the interest).

It terms of your TC income, pension contributions etc, it doesn't matter where the money comes from - it is just part of your income. So as long as you have enough relevant income to make the pension contributions (and it sounds like you do) you can make them whenever in the year and from whatever "pot".

I think you need to understand the TC calculations and cross-year interaction, and make your decisions based on that.

Hi, yeah I get that only the interest counts, but I’m reaching a point where the interest may become a financial problem for me going forwards.

I think I need to speak to TC (shut today) then speak to the LEA and arrange to overpay by £300pm from my wages, then I can kind of square it up that way until I buy a house and stop overpaying.

I will see where they stand on the lump sums, as they have been paid in three instalments, but it’s really the last one which is 200k which is really causing me a headache

Unless anyone can think of another way 🤦🏼‍♀️

I appreciate you know it is the income which is the problem, but other posters are referring to the capital being ignored.

Ah right, I think I’m getting into a right tizzy. I never factored in the problems this money would cause me if I am honest.

So I have emailed the LGPS (pension) with a view to paying a lump sum of 2k asap.
I think I then show that in the pensions payment section on my renewal, and then I can declare my interest earned and the two should even each other out.
I had planned to pay a lump sum once I had bought anyway as I’m woefully short on pension, so it may be better to do that now really.
I think that ought to work shouldn’t it?

If you were planning on putting more into your pension anyway then this is a good way to do it.
Again, though, if you read up about it you will find it's a bit harder via Lgps - you buy additional pension so they want a GP report and it takes a while.
Don't worry though, they probably also have an AVC scheme as well

Deprivation of capital rules. How come you are still on tax credits - did you split some years ago s surely you would have needed to switch to UC when you became single?

If you can afford to buy a house then pay £300 per month, you should not be claiming tax credits. They are for people who literally struggle every month, you are not one of them!!

I am on tax credits because we split several years ago and I have only recently managed to get the divorce done.
As I have already explained, the money is with me briefly in order for me to buy a house from my divorce proceeds. I am not rich, I just temporarily have the money whilst I buy a house.
After buying the house all the money will be gone.
I am within the rules for tax credits, as I did check before I received the money and would have stopped claiming had that been the case.

I can afford to buy a house because I have just divorced having spent several years in rented with the children. I do not have £300 per month spare long term, it is just the unexpected interest from the settlement. Once I have bought a house I will have no savings and a mortgage to pay, it’s not a stash of cash I am going to sit on for 5 years.

Also, if I was on UC the proceeds would be disregarded for 6 months due to it being a divorce settlement, which is long enough for me to use it for what it is intended for.