Lump sum for school fees and claiming tax credit?

jjjaaammm

We have been given a lump sum from a relative for our childrens school fees and want to know how it will affect any claim for tax credits. My partner is just starting his own business so money will be tight and I look after our baby and other two children at home. We have a flexible mortgage where we have put some of the money leaving us without a mortgage and have invested the other £30,000. All this money is needed for the payment of the school fees. Should we pay the school upfront the £30,000 and pay off our mortgage so that we would be able to claim tax credit and family credit? My partner and myself have always worked and have never claimed any benefits but maybe over the next few years we will need some help. Does anyone know how this money would affect any benefits and the best way of ensuring the school fees are paid?

bestpud

Tax credits only count interest earned on savings as income, not the sum itself, and only once the interest is over £300 a year (which it obviously will be).

Some savings don't count though - anything in an ISA will not (not sure about others).

Basically you could pay the school in advance but you then lose the interest on it and tax credits do not take this pound for pound. You may not be better off doing that, is what I am trying to say.

A lot depends on your income and the hours your OH works tbh.

That's all I can think of but someone else will likely know more.

I'm guessing you don't want my opinion on the moral issues here so I will keep those to myself...

simpywimpy

Personally I wouldn't pay such a high amount to a school up front. Not being in prvate education I don't know how long this amount would cover but if anything was to happen to the school, is there a chance you could lose your money?

I would put the savings in account for the children themselves then it's not yours it's theirs and they can pay the fees direct from that whilst also earning the interest on the savings at fairly decent rates. Then it wouldn't affect your tax credit at all as far as I know.

jjjaaammm

Thanks for your answers!
The money would only last two years for one child and one for the other. The school is very unlikely to fold and I would obviously check what the terms are before a payment was made.
I appreciate your comment with regard to the moral issue but as I said neither of us have ever claimed anything working for 25 years, paying tax and NI. My OH is starting up on his own and I plan to work part time in the future. Our income will be low initially but hopefully business will go well and we wont need any benefits!
Question was raised as when I used the calculator it asked about savings and although we have the cash, it was a gift for our childrens education.
From reading other posts I thought it couldnt be put in the childrens names as anything over £3000 is counted?
Would it be ok to leave the mortgage with a credit facility or be best to pay it off completely?

[Deleted User]

The lump sum gift does not need to be declared to TCO. IF you earn interest on the money whist it is in the bank, the interest would be counted as "Other Income" for tax credits.

If "Other Income" is over £300 for the year you need to declare this to TCO.