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A cautionary tale regarding Tax credits.
robotsindisguise
Posts: 15 Forumite
A cautionary tale regarding Tax credits.
Hello,
Relatively new to this site, but just wanted to see what people thought of this and perhaps help others avoid this issue (apologies if I've posted in the wrong place).
My girlfriend (GF) divorced from her husband some time ago and their solicitors brokered a deal whereby the house that they had a joint mortgage (MG) on would be transferred into her sole name and he would keep his substantial pension and savings to himself. The MG was fairly new and he hadn't paid a great deal into it, but my GF was able to keep the house so that was fairly straight forward. Despite this, the legal fees for their lengthy divorce were high.
My GF decided to remortgage (RM) to cover the legal fees, pay off a few other things that had built up/been left by her ex, and originally intended to have some work done on the house. She was now divorced and claiming tax credits, so she checked if remortgaging was okay with the Tax credit people. They said the lump sum of money wasn't a problem and she could use it as she saw fit (holiday, extension, new car etc.) but they advised her to declare interest accrued on the sum. My GF didn't expect to be holding onto the money for long as it was earmarked for other things, so little interest or profit was anticipated.
The property had been purchased for a really good price, and due to various factors including its desirable location, was soon valued at a lot more than the original price paid for it (almost double). The solicitors arranged the RM, took their fees and transferred the rest to my GF. Despite the RM there is still a large amount of equity left, and the MG will be paid off in 10 - 12 years time as my GF has always tried to top her MG payments up with spare cash.
A really close friend (FR) of my GF was also going through a tough time, and had been left in a quite desperate financial situation by her ex, to the extent that she might lose her house.
My GF has a kind heart and offered to lend her FR a large sum of money to clear her debts so that she could stay in her home (There was no way her FR could take out a loan from the bank or renegotiate the MG).
My GF lent her FR the remaining money from the RM (instead of using it for her house etc.). The agreement was that her FR would then pay her back an amount she could afford each month.
So far so good...
However...
My GF has now received a letter from Concentrix, on behalf of HMRC, informing her that they think her payments may be wrong and have so far asked for her bank statements from the last tax year.
From what I can see this company will look at these statements and will question why my GF has been receiving cash deposits (made by her FR). Having looked at a number of forums it would seem that they will not be interested in the reason why (as detailed above) but will consider this to be fraudulent. My GF was genuinely trying to help her friend, and thought that as she was told she could use the money from the RM as she saw fit, lending it to someone (and then having it paid back) wouldn't be a problem.
Unfortunately it doesn't look like this is the case, so I suspect my GF will be looking at a large penalty/fine. She is now worried sick (and she has always been very savvy with her finances) plus her friend feels terrible.
Depending on how much the fine/penalty is, I may be able to help, but it seems that giving money to a person on tax credits will only cause more damage (even if it is to make a monthly penalty payment to HMRC).
It was always intended as a good deed, but unfortunately this will likely cost my GF dearly.
Hello,
Relatively new to this site, but just wanted to see what people thought of this and perhaps help others avoid this issue (apologies if I've posted in the wrong place).
My girlfriend (GF) divorced from her husband some time ago and their solicitors brokered a deal whereby the house that they had a joint mortgage (MG) on would be transferred into her sole name and he would keep his substantial pension and savings to himself. The MG was fairly new and he hadn't paid a great deal into it, but my GF was able to keep the house so that was fairly straight forward. Despite this, the legal fees for their lengthy divorce were high.
My GF decided to remortgage (RM) to cover the legal fees, pay off a few other things that had built up/been left by her ex, and originally intended to have some work done on the house. She was now divorced and claiming tax credits, so she checked if remortgaging was okay with the Tax credit people. They said the lump sum of money wasn't a problem and she could use it as she saw fit (holiday, extension, new car etc.) but they advised her to declare interest accrued on the sum. My GF didn't expect to be holding onto the money for long as it was earmarked for other things, so little interest or profit was anticipated.
The property had been purchased for a really good price, and due to various factors including its desirable location, was soon valued at a lot more than the original price paid for it (almost double). The solicitors arranged the RM, took their fees and transferred the rest to my GF. Despite the RM there is still a large amount of equity left, and the MG will be paid off in 10 - 12 years time as my GF has always tried to top her MG payments up with spare cash.
A really close friend (FR) of my GF was also going through a tough time, and had been left in a quite desperate financial situation by her ex, to the extent that she might lose her house.
My GF has a kind heart and offered to lend her FR a large sum of money to clear her debts so that she could stay in her home (There was no way her FR could take out a loan from the bank or renegotiate the MG).
My GF lent her FR the remaining money from the RM (instead of using it for her house etc.). The agreement was that her FR would then pay her back an amount she could afford each month.
So far so good...
However...
My GF has now received a letter from Concentrix, on behalf of HMRC, informing her that they think her payments may be wrong and have so far asked for her bank statements from the last tax year.
From what I can see this company will look at these statements and will question why my GF has been receiving cash deposits (made by her FR). Having looked at a number of forums it would seem that they will not be interested in the reason why (as detailed above) but will consider this to be fraudulent. My GF was genuinely trying to help her friend, and thought that as she was told she could use the money from the RM as she saw fit, lending it to someone (and then having it paid back) wouldn't be a problem.
Unfortunately it doesn't look like this is the case, so I suspect my GF will be looking at a large penalty/fine. She is now worried sick (and she has always been very savvy with her finances) plus her friend feels terrible.
Depending on how much the fine/penalty is, I may be able to help, but it seems that giving money to a person on tax credits will only cause more damage (even if it is to make a monthly penalty payment to HMRC).
It was always intended as a good deed, but unfortunately this will likely cost my GF dearly.
0
Comments
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I'm confused - why is your GF eligible for tax credits?0
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If the money is shown going out of the account to the friend, why would there be a big problem. I assume your girlfriend was savvy enough to get a signed contract for the monies lent to the friend?0
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Hello, and thanks for your reply.
My GF has a son from her previous marriage, and has been working part-time on a low wage for several years.
Many thanks.0 -
Hello Bear Time, and thanks for your reply.
Apparently it makes no difference if there is a signed contract or 'gentleman's' agreement. They consider the money being paid back as a form of income.
Many thanks.0 -
If this is genuine and her reason for the mo he's bring paid back to her account, then I really would suggest she gets hold of the bank statement that shows the amount going out to this friend. Everything to back up her story is probably going to be needed.
I'm sure they will grasp the situation if you can provide evidence.0 -
Low income, single parent - yet she lends a large sum to a friend?
Is she charging interest? That would need to be declared; after all, the interest would have been taken into an account if the money had remained in her bank account.0 -
Hello Transformers, and thanks for your reply.
As mentioned originally, following her divorce she was able to remortgage. The original mortgage deal was actually quite a bad deal compared to the new one, and so the monthly payments weren't much different (just a longer term).
Although she is on a lower wage now than she was then (due to job losses at her previous employer) part of the RM money was originally intended for work on the house. GF decided that her friend was more important (they have been close for years, so it was like lending it to a family member). I don't think GF ever intended to ask for interest (she is switched on, but kind where her friends and family are concerned).
Many thanks.0 -
But she has lost interest from her savings - interest which would have been used as part of the calculations for tax credits.
Why should the taxpayer subsidise this loan arrangement?0 -
What we seem to be lacking are some actual figures.
How much did she lend her friend? and at what interest rate?
How much money does she have sloshing around from a remortgaged house that doubled in value very quickly?. bit jealous here because mine is worth the same as it was 7 years ago.
If she can manage to get a remortgage from the banks she is probably earning too much to get tax credits.
Don't really see how giving a loan to a friend can affect tax credits as long as she isn't charging ( a lot of )interest. Judging by other posts concentrix seem to be more interested in whether single claimants are living alone or not.0 -
robotsindisguise wrote: »Hello Bear Time, and thanks for your reply.
Apparently it makes no difference if there is a signed contract or 'gentleman's' agreement. They consider the money being paid back as a form of income.
Many thanks.
Do you actually know that this is the issue that concentrix are querying?
They would have no way of knowing about the loan repayments and even if they did, they can only take it into account if tax credits legislation allows them to.
I can't think of any provision that would treat repayment of a loan from a friend as income.
I am not quite sure why you are jumping ahead with conclusions at this point.
IQ0
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