Somebody paying my pension when on tax credits

Wickers_2

Hello,
I am asking this on behalf of a friend so may not have every details.

My friend works on a low income so claims working/child tax credits. His mum's brother has passed away and left her some inheritance. His mum has suggested putting a £40k sum from her inheritance into a private pension for him.

Are there any implications for his tax credits claim ?

Thanks.

molerat

https://www.disabilityrightsuk.org/guide-tax-credits

Read the link re capital and tax credits.

He can only contribute the maximum of £2880, his annual income or £40K to a pension so would not be able to put that amount in at once.

Wickers_2

Thanks molerat,
Sorry, should have expanded on the 'low income'. It's low when you have 4 children to look after but he is a income tax payer and I believe the £2880 limit is just for non workers/non-income tax workers?

Wickers_2

Trying to do 10 things at once !! So his mum could put £40,000 into his pension without affecting any tax credit claim??

poppy12345

Wickers wrote: »

Hello,
I am asking this on behalf of a friend so may not have every details.

My friend works on a low income so claims working/child tax credits. His mum's brother has passed away and left her some inheritance. His mum has suggested putting a £40k sum from her inheritance into a private pension for him.

Are there any implications for his tax credits claim ?

Thanks.

If the mother claims any means tested benefits then this could be classed as deprivation of capital.

Wickers_2

Thanks poppy,

His mum is 80 so just on state pension.

Ames

Wickers wrote: »

Thanks poppy,

His mum is 80 so just on state pension.

Giving such a large amount could have other implications. If she has to go into a care home she could be treated as still having it. Depending on the value of her estate there are limits for gifts to family when it comes to inheritance tax too, which I think are a lot lower than £40k.

Wickers_2

Thanks Ames,
His mum is still lucky to be fairly active. My understanding is the rules about care home fees are the same as universal credits i.e deprivation of capital and if you have got rid of money on purpose to get more benefits (or care home fees paid).This was not done because she is still active and could go on for many more years ? I would not be too sure how the council could get the £40,000 back for care home fees from his pension?

I think the £40,000 gifted to my friends pension can be added to her estate value for IHT purposes for the next 7 years.

Would the tax credits office be including this £40,000 gifted to his pension in his credits calculation?

molerat

Wickers wrote: »

Thanks molerat,
Sorry, should have expanded on the 'low income'. It's low when you have 4 children to look after but he is a income tax payer and I believe the £2880 limit is just for non workers/non-income tax workers?

He could only put the amount of his earned income into the pension.

xylophone

You say that the mother is on "just" state pension - is she in receipt of guarantee pension credit or any other means tested benefits?

If she is, and is not on an "Assessed Income Period", the inheritance and any gifting of it could have implications for the GPC.

Let's suppose that she is not on pension credit and wants to make a gift of a large sum.

She is currently fit and well - however, she is 80 years old and should she suddenly need means tested care, it would be quite possible for the Local Authority to consider whether she had deliberately deprived herself of capital in anticipation of any future care need.

Even though the money could not be taken from her son's pension (assuming that he were under 55), the LA might well treat her as though she still had the capital - this might involve requiring the recipient of the gift to assist with the payment of care home fees.

With regard to the amount of the gift, the contribution to the pension will be limited by the amount of the son's gross relevant earnings in the tax year, the amount he has already contributed to a pension in this tax year and the annual allowance.

Let's suppose his relevant earnings for the current tax year are £40,000.

If he has made no pension contributions at all, he could open a personal pension and she could make a payment on his behalf of a maximum of £32,000 on which tax relief of £8000 would be claimed by the provider.

If he had already made contributions of (say) £2000 to a personal pension in this tax year then the amount the mother could contribute on his behalf would be correspondingly reduced.

Wickers_2

Thanks xylophone,
Lots of useful info. I'll pass this onto my friend. Whatever way you turn the Government have got it covered !!