claiming tax credits and cashing pension

stephen_m_m

Hello everyone


I am self employed and make £4000 pa and receive £52pw tax credits, will this be affected if I cash in my pension at 55
Thanks Steve.

atush

Why cash it in? Are you retiring? What will you retire on if you spend it now?

Yes, it could affect your tax credits, as 75% of the pension will be considered as income.

If you take just the 25% TFLS it may not affect them.

stephen_m_m

Thankyou for your reply,
I have 3 pensions and just want to cash in the smallest to pay off bills and help the kids out, I could say take 25%12 k and have a reduced pension on that one, I am not blowin it lol just wanted to know if I would loose my working tax credit. thanks again.

SnowMan

It isn't completely clear whether cashing in the pension will be treated as income for working tax credit purposes.

For working tax credit, capital isn't relevant (only interest from capital is relevant, so for example taxed savings interest is treated as income) so really we are just looking at whether the cashing in of the pension will be treated as income for working tax credit purposes in the tax year it is cashed in.

Normally (regular) pension income is taken into account for working tax credits but a single cashing in payment like this may or may not be treated as income in this tax year.

There is a DWP note on how the flexibilities and welfare benefits interact

https://www.gov.uk/government/publications/pension-flexibilities-and-dwp-benefits

Interestingly that doesn't mention tax credits. Not sure if that is because tax credits are administered by HMRC or because treatment of capital for tax credits is different for tax credits than for most of the other means tested benefits and so some of the note is not relevant.

Because tax credits are based on tax year income, as opposed to benefits such as JSA which are based on weekly income, perhaps there is more chance they will take it into account for tax credits than for the weekly benefits (?)

It might be a good idea to book a Pension Wise guidance appointment face to face with the CAB.

https://www.pensionwise.gov.uk/appointments

They may need to refer you to a benefits specialist to check out the likely interpretation by HMRC.

stephen_m_m

Thanks for your help, this is really helpful
. I have booked a phone call with an adviser at pension wise on Thursday and will let you know how I got on.
cheers Steve