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

If you wish to buy extra pension by paying a one-off lump sum, you can do so either via your pay or by making payment directly to your pension fund. If you choose to make payment directly to your pension fund, you will need to arrange tax relief directly with HMRC as the contributions are not being deducted from your pay. You can do this via your self-assessment tax return or by calling or writing to HMRC.

So pretty clear, but teated different depending on whether it is a deduction from salary or paid direct (which makes sense).

I wonder if it might be worth just requesting to pay more via my wage temporarily. I do need more pension if I am honest, but I don’t know if I could get that sorted in time for it to make any discernible difference

Me again.
So I gave my figures to TC and it’s properly tipped me over the threshold and hit the 18k mark, which has promptly stopped my working tax credit, so I’m down quite a bit.

I can use the interest I earn temporarily to shore myself up, but like I said, the interest lasts until I get a house, so not that long I hope.

I can’t decide if I’m better to put that money away, but admittedly get a very poor return and create a lot of work for myself or just bite the bullet and use the £300 interest a month to live on until the money goes on a house. Then change my income with tax credits to reflect the fact I won’t get so much.

Obviously the move to UC will be looming and I don’t think they take any pension payments into account so it’s all a bit of a mess.

UC also disregard all pension contributions.

I still am not that clear when this house is being bought. If it's likely a while off, stick the money in a savings account that pays out in a year's time - gives you 12 months to decide what to do with the interest.

Otherwise - you are doing fine. Instead of tax credits you have interest from your savings to live off. You could have put the money in a savings account at 0.2% and had the tax credit. Same difference. No better, no worse off. Your claim isn't cancelled. You have a huge amount of money in the bank and are currently very cash rich. Don't be frightened to spend the interest for a few months.

@ArcticSkewer i only got the bulk of the money this month, so everyone has refused to accept offers on houses until I get the money, which is understandable, but now leaves me in a situation whereby I now need to find a suitable house I can afford and there are not really any currently.
The minute I find a suitable one then it will get done as quickly as I can!!

I am going to put some into an instant cash ISA, but you are right.

In all honesty I’ve never had money, however briefly, and having it is actually really unsettling, I will be more happy when it’s invested in bricks and mortar really.

I am also going to open a couple of current accounts to try to spread it about a bit.

I get it

I thought it would make me happy but it's actually hugely stressful when you are used to having very little. I used to stress that it would all be taken away somehow. I was much happier when it was back in bricks/mortar and I was back to being 'poor' (but actually mortgage free - amazing!). You're also dealing with the emotional fallout of divorce.

It'll be fine, whatever you do with the £3k.

Yes I should be mortgage free, which will be amazing, but all the money give or take will go towards achieving that, but I will be so much more settled when i don’t have it.

Just looking at it makes me edgy, and it’s not answered problems, it’s created them because I only realised today that I would have to pay tax on the interest (although I think I can get around 2k or so before that) so what should feel really quite liberating is full of stress and Google and posts on forums 🤦🏼‍♀️

I think it’s only fun having money if you have loads and loads and you don’t need to tread the tightrope of benefits and life and your money is temporary.

But Thankyou for your help, I know I’ve been a pain in the arse, I want to punch myself frankly 🤣

haha you are welcome, and I enjoy this kind of thing anyway don't worry. Just sorry it's unexpert advice but there are others here and elsewhere on mn who are trained in this area.

Just keep reminding yourself of the big picture - you don't need the tax credits right now as you have lots of lovely money. You have to pay interest because ... you have lots of lovely money etc. All your issues are about £3-5k worth of money, which, looking at your bank balance .. isn't a lot! Weird thought hey!!

New Year should bring more houses on the market. If it looks like it will take a while though, invest that money in something that pays out at the end of the 12 months but you can withdraw early if you want. The penalty is probably just the loss of interest (which is stressing you out anyway, hey). It gives you 12 months to decide what to do about the pension payments. Just an idea.

@ArcticSkewer do you know of any accounts that do that? My three main savings accounts pay monthly and there is no facility for annual interest.
Searches seem to be coming up blank unless I do a one year fixed bond, which won’t work as I anticipate buying within a maximum of 6 months or less x

www.sainsburysbank.co.uk/savings/sav_definedsaver_skip?cid=msm_dtp_202212

Interest is calculated daily and paid on the anniversary of account opening.

You can have 3 withdrawals a year to keep the rate. So when you find a house you withdraw most of it, and leave a small balance and get the interest at the year anniversary.

There will be others, this was the top rate on Moneysupermarket.

@Chasingsquirrels thankyou c

For basic tax rate payers (under £50,270) you can earn £1,000 of interest per annum before having to pay tax on it.
If you've only had £900 to date, put the money into an account (or more than one for the £85k protection) now, you won't then breach the £1k this year and might not next year depending on how long it takes to find a house.

I have opened a Current account and am putting some of the savings into that to just reduce them down, I’ve just opened an ISA to put in 20k now and 20k after the new tax year and I’ve opened the deferred access account, so I’m moving the money across various platforms, some of which (Starling) only pay nominal interest.

After April I will move it all again probably to earn interest again as I won’t have the money for a year.

It’s all been really complicated because I never really thought about it, never actually having had much money I kind of thought it was as simple as sticking it in easy access accounts and leaving it! I hadn’t factored in huge amounts of interest and tax implications, or where else it might impact me!!

I always thought I was ok with finances, but this week has shown me differently!!