Private Pension, Inheritance and Working tax/ Child Tax Credits

Puffalump_13

I’m about to inherit £32k from my ex husbands pension in cash, I’m currently receiving child tax credits and working tax credits, I would like to know whether I can invest this in a a private pension ? As I have tiny work pension which has been running for 2 years, or will the benefits agencies expect myself to use this to live on and give up my benefits ? The information online very confusing, I do not to get this wrong and do something that’s incorrect.

NedS

Tax credits do not take capital into account, only income earned on that capital. So it will have an impact whether the money you receive from your ex-husbands pension is classified as income or capital when they pay it to you.
Once you have the money, you can invest it in a pension for yourself up to the current rules whereby you can not contribute more than you earn in any year, and the £40K annual limit.
If you have any means tested benefits (UC, JSA, ESA, Income Support) then these will take capital into account and you will be expected to live on your capital before claiming benefits, depending upon the amount.

Puffalump_13

Thank you for your help,on the letter it’s classified as a lump sum, not very helpful, thanks about the information that tax credit do not take capital in to account, but I did a calculation on using the Turn2us Benefits Calculator yesterday evening tax credit fine its if I’m made move to universal credit I will lose benefits based on this money if I was to invest in a savings account.
So if put into a pension will it be save ? I earn just over £10k a year so will only able to put £10k into the private pension each tax year ?
Thank you so much for all your help ��

NedS

Yes, if you earn £10K gross, then you can contribute a maximum of £10K gross to any pensions in that tax year (so you can pay in £8K and get £2K tax relief making a total £10K gross contribution).
Any money in a pension is disregarded as capital for benefit purposes, so you may want to contribute the money into a pension before you are moved onto UC from tax credits at some point in the future. Of course this shouldn't be your main/only reason for saving into a pension, but it will potentially be a factor for you.

Puffalump_13

Thank you so much, my main reason for put it in a pension is I haven’t received any maintenance since my divorce, so I haven’t able to add anything to my works pension, now my ex husband died, I couldn’t afford to pay money into now.
I need to find out whether it’s classified as income or capital from the pension company is that
correct ? If it’s capital I can do this, have I got that correct ?

NedS

Whether it is classed as income or capital will only affect whether or not you need to declare it to Tax credits. If it's classed as income then you will need to declare it.

zagfles

Also pension contributions reduce your income for tax credits purposes, so this could increase your tax credits! Google TC825

german_keeper

Help to Save might be of interest to you, just google it. It is a government scheme aimed at people on TC or UC. Sorry, I'm a bit of a Luddite, if I knew how to put a link up I would.
It's not silly amounts of money but you can invest £50 per month for 4 years, a total of £2,400 and get a 50% tax free bonus added, so £1,200 if you invest the full £50 per month.

SuperMoose

german_keeper wrote: »

Help to Save might be of interest to you, just google it. It is a government scheme aimed at people on TC or UC. Sorry, I'm a bit of a Luddite, if I knew how to put a link up I would.
It's not silly amounts of money but you can invest £50 per month for 4 years, a total of £2,400 and get a 50% tax free bonus added, so £1,200 if you invest the full £50 per month.

Link here
https://www.gov.uk/get-help-savings-low-income

german_keeper

Thanks, I really need to drag myself into the 21st century and learn how to do stuff.

Puffalump_13

I have spoken to the pension company today they couldn’t confirm whether this is a income or capital payment, just told me it’s a Lump sum death benefit, my ex husband was 56 years old, so there’s no tax to pay on it and isn’t subject to inheritance tax because the letter states this. But I still have no idea what this payment classed as ?