Tax credits and Inheritance

[mummyto35]

I knwo this subject has been talked about often, but nothing recently and i have tried and failed to find ANY information online.

I recieve Child and working tax credits as on a low income.
I recieved a sum of 90k as inheritance from my father who passed away.

Before i recieved it i rang HMRC to query what i do when i recieve the money, and on the phone they said i needed to declare it as income and i would then need to be re assesed (obviously if thats based on income i would of been over paid). They stated that i then it woul dbe based on the start of the tax year (ie April - 7 months before i recieved it) and i woul dthen potentially need to pay back all the months since then.
Online i dont find any of this type of information. But also To me this makes no sense, im essentially get taxed on the months that i did need the money and not neccasrily for thr remainder of the year which i expected.

I understand this is a load of money, but i am still a single parent to my three children and would really like to try and get on the property ladder. We live in london and its stupidly high for rent and house prices and would really not want to live off the money if my intentions is to try and do this.

Obviously if i need to declare it as income i understand and will, i just want to know if i will have to pay back a lump sum and if im actually entitled at all.

Thanks

That's how tax credit works I think as they award based on projected income and then make adjustments later based on your actual income.

I understand this is a load of money, but i am still a single parent to my three children and would really like to try and get on the property ladder.

It's unlikely you will be able to buy a property anywhere near London with £90k to cover everything whilst on a low income and recovering top up benefits.

I think you have to be realistic here 'it's a load of money, but' - no it's a load of money full stop.

I think its not income but capital (savings). Tax credits, unlike UC, only look at your income, not savings or capital so I think you should be able to keep it & it not affect your tax credit claim.

Morally I don't agree with this but I believe this is the rule.

You need to check this out thoroughly however to make sure you understand the rules of tax credits. Try googling for more info, look at CAB, gov.uk or entitledto for more info.

The problem is UC is coming for OP very soon anyway

Yes I also think it would be classed as savings/ capital and you would need to declare any interest over £300 a year earned on this. I'm amazed this is still allowed when people on UC aren't allowed to receive anything when they have savings over 16k yet people with 90K on tax credits can keep claiming. It's a grossly unfair system which needs to be the same for all asap.

I think if switching to UC form tax credits, any savings over 16k can be disregarded for 12 months ? I may be wrong.

The income you receive from investing the sum will form part of your income for tax credits but the capital itself isn't relevant.

I think if switching to UC form tax credits, any savings over 16k can be disregarded for 12 months ? I may be wrong.

Oh that's really interesting, I didn't know!

It's capital not income so irrelevant for TC- I know someone who has in excess of £250K in savings but is still entitled to old style Working Tax Credit. UC is different and over £16 k then you get nothing. DWP are taking an age to switch people over- target was originally 2017- everyone on it- but latest news is 2028.

Capital can be disregarded if intended to be used to buy a property the claimant lives in. There’s also other rules about dealing with eg compensation money after an accident

The inheritance might trigger a move to UC as a “change of circumstances” in which case the UC claim will be zero as savings over £16k unless you can get it disregarded as above. CAB can advise

Sorry I should have been clear I think this is only under managed migration where you are forced to switch to Uc.

Tax credits is a red herring here. Your savings aren’t used as income or capped, only interest you earn on them over £300. I assume low income in London means you are on housing benefit? If so then your housing benefit will be stopped. There is a 12 mth disregard rule, but not 100 on which circumstances this can be used as different local authorities have different rules. I would go to citizens advice and check that info. I would also see a Solictor to see if having the 90k put in a trust is possible so your means tested benefits aren’t affected now, and going forwards when you are moved onto uc

@Nothighgaprequired

I would also see a Solictor to see if having the 90k put in a trust is possible so your means tested benefits aren’t affected now, and going forwards when you are moved onto uc

Can you explain how this works please?

you can be a beneficiary of a trust of money/property and not be the “legal” owner so the money in trust can’t be used in a mean test, would need a solicitor to check eligibility and create the trust

I’m pretty sure that if the op put it in a trust now as she has already received the money it would be seen as deprival of assets

The only way it would work is if the person who died set up a trust before they died .

So the DWP would treat the op as if she had the money even if she couldn’t access it freely if she did this now .

with TC it’s interest from the money not the capital.
although if you get HB & Council Tax reduction you will most likely need to pay this

Putting the property into a trust will not work. If someone spends does something with their money in order to increase their entitlement to state benefits it is called “deliberate deprivation of assets” and that person is treated as if they still own the assets.
It is very similar to when people do this if they think they are going to need care in a home.
Google the phrase “deliberate deprivation of assets”

Beneficiary of your own trust that you put your own money into?

I thought that this was how it worked too. But OP, if you want to stay in London/SE, you might struggle to afford to buy even with a £90k deposit and might be better to stay renting with HB, depending on how that's working for you.

However, you may be able to afford to buy elsewhere if that is something that would work for you, eg if you have ties in other areas of the country and could find work there. In many places you could buy with a small mortgage that you could afford and would qualify for so worth looking into, although moving areas would probably trigger a move to UC, and you'd need to talk to a broker to see if there are lenders would would lend in your circumstances (~50% deposit and income made up of low wages topped up by UC).

Just to clarify.

I am aware that i can not coninue to be on TC moving forward.
My issue here is the over payment i would of recived during this year ( that they re caluculate from before i recieved the money) its a tax essiantly in my eyes that seems unfair as when i recived that money i needed it.

Second im also aware 90k can not buy me anything really in reagrsd to living in south london. But theres a chance of buying soething whether for investment or for us to live - either way creating a passive income or moving home.
All in which i obviosuly wouldnt be in reciept of TC.

Thirdly i am not in recipt of housing benefit or council tax reduction other than single person so this wouldnt be affected.

Fourthly I do understand the capital gained via interest and believ it is £300 but either the person on the helpline was compeltly wrong and so many (plus goggle) agrees that it is not clssed as income.

I also understand its unfair system, but i am in it. I was and am on a low income and unfortuntely my father passed away and i was luckly to recieve something. Im merely seekign advise on the past months ive been in reciept of it all. Essentally i calculated that i would need to pay back around £9k which is 10% of my inheritence which seems deeply unfair for someone who is still on the lower pay bracket then the majarity of the nations population.

I think your solution was probably to end your claim before you received your inheritance.

Speak to citizens advice, they will be able to give you proper advice

unfortunately i had no idea when i was to recieve it due to an ongoing issue with probate - taking nearly 1.5 years. So actually couldnt be done. Also doesnt help the fact i am referring to the amount i have been paid since april 2022.

Have contacted CAb twice - awaiting call back. Hoping i get some answers.

I’m sure that you aren’t a beneficiary until the money goes into your account
That would definitely be the case with UC

are you saying that tax credits assess you on the money you haven’t had due to the tax year if so that’s crazy and probably wrong

the staff at HMRC are at best decent and at the worse incompetent so I would double
and triple check this

Op it is not classed as income, you were wrongly advised. It is capital and you only need to declare any interest over £300. It's very depressing how often these tax credits and Uc advisors give out wrong information.