Understanding the new tax credit rules

zagfles

annie1975 wrote: »

Just reading through the universal credit rules and if I am reading it right,looks like some people will be worse off..At the moment extra income (private pensions etc),41% is deducted from tax credits.Under the UC rules 65% will be deducted..if that is the case looks like we will be worse off under UC than the present tax credits.

You can't compare them because there are lots of important differences.

First is that the tax credits 41% rate is based on gross income whereas the 65% in UC is on net income. This means when tax and NI are added to the equation the MDR in tax credits is 73% and UC is 76% once above the tax threshold, without any other benefits to consider.

Second is UC starts from a higher base, JSA plus CTC (plus possibly HB), rather than WTC plus CTC.

Third the deduction rate doesn't apply together with HB, as it does in tax credits. For instance someone getting HB plus tax credits will have a MDR of 91%, whereas under UC it'd be 76%.

Fourth the disregards are also different, depending on family type etc. You can't make a comparison without factoring in all these variables.

ETA: just noticed you mentioned private pensions,this could be very bad news under UC as I think they are deducting 100% of unearned income with no disregard. It's only earned income which has the disregards and tapers applied. See https://forums.moneysavingexpert.com/discussion/4264823

zagfles

D2875 wrote: »

Hi,

Just need some help as im not really understanding the new Tax Credit rules that are coming in (I'm sure im not the only one). We are both working 30+ hours a week and have 2 teenage kids still in school. Are we still going to be eligible for Working Tax Credits or are we going to be the ones who lose out. Our total salary amounts to £32k and we are currently receiving benefits entitled to us, we're just trying to work out (like so many others) how much we will be losing when the new rules come in as I just cant get my head around it

Do you have childcare costs, or disabilities? If not you should be getting very little if anything in tax credits now?

Morlock

princessdon wrote: »

And the good news is 2.8 will be better off

And I am sure they will be better off by a smaller amount than 2.8 million will eventually lose.

annie1975_2

zagfles wrote: »

You can't compare them because there are lots of important differences.

First is that the tax credits 41% rate is based on gross income whereas the 65% in UC is on net income. This means when tax and NI are added to the equation the MDR in tax credits is 73% and UC is 76% once above the tax threshold, without any other benefits to consider.

Second is UC starts from a higher base, JSA plus CTC (plus possibly HB), rather than WTC plus CTC.

Third the deduction rate doesn't apply together with HB, as it does in tax credits. For instance someone getting HB plus tax credits will have a MDR of 91%, whereas under UC it'd be 76%.

Fourth the disregards are also different, depending on family type etc. You can't make a comparison without factoring in all these variables.

ETA: just noticed you mentioned private pensions,this could be very bad news under UC as I think they are deducting 100% of unearned income with no disregard. It's only earned income which has the disregards and tapers applied. See https://forums.moneysavingexpert.com/discussion/4264823

So we will be a LOT worse off.To think that by my OH taking 2 of his pensions to make life a little easier for us (and reducing our tax credits at the same time,reducing the benefits bill)..It will be interesting to see if Child maintenance will be classed as unearned income. For me all money coming into a household should be counted as income....Private pensions etc at the moment for tax credit purposes(as is wages)is based on gross income.So like in my case pensions come to around the £5300 mark,(£300 disreguard).But net is only £4000.

Gentile

32K gross joint income gets a tax credit top up?? When did this happen?

annie1975_2

Gentile wrote: »

32K gross joint income gets a tax credit top up?? When did this happen?

Think the £32k cut off is for 2 kids. If you have 3 kids and get £32k then you would get tax credits..We only have 1 so our cut off is £26k gross.

Horseunderwater

Yes the £32.2k is for 2 or more kids and CTC only.

charlotte4940

does anyone know if a Universal Credit calculator is available yet?

shedboy94

D2875 wrote: »

Hi,

Just need some help as im not really understanding the new Tax Credit rules that are coming in (I'm sure im not the only one). We are both working 30+ hours a week and have 2 teenage kids still in school. Are we still going to be eligible for Working Tax Credits or are we going to be the ones who lose out. Our total salary amounts to £32k and we are currently receiving benefits entitled to us, we're just trying to work out (like so many others) how much we will be losing when the new rules come in as I just cant get my head around it

1 post, no reply......I smell a

zagfles

charlotte4940 wrote: »

does anyone know if a Universal Credit calculator is available yet?

Yes but I don't think it's been updated with the Autumn statement changes yet (disregards etc) so not necessarily accurate but will give a rough idea

http://policyinpractice.co.uk/universal-credit/universal-credit-calculator/