UC Managed Migration and Capital (Savings)?

ElwoodBlues

I'm currently still receiving child tax credits, and conscious that managed migration to UC appears to be looming. And I have savings over the 16k threshold. The reason I have accumulated these savings is because we've scrimped and saved over the years with the intention of extending our house, to upsize to a house big enough for us. We were able to cope here when the kids were smaller, but now they're all teenage or fast approaching and space is becoming a massive issue (3 kids sharing 2 tiny bedrooms, each about 50 sq ft, and only 1 shower and toilet between all of us).

So we've really sacrificed our standard of living to save towards a bigger house - no holidays, except camping couple of times, I drive a 25 year old car, no luxury purchases at all. Our house is now in serious need of renovations regardless of extending, as I've put off every bit of maintenance I possibly could to save money - the carpets are threadbare, the paint is peeling off the walls, and not even had our boiler serviced in years. We'd much prefer to extend our current house than move, as we love where we live, and I don't want to disrupt the kids education by them changing schools, especially as GCSEs are on the horizon. And we'd struggle to sell our house in it's current state, even though it's warm (just about) and dry, I'm ashamed to say it really is looking tired and neglected now.

Currently our savings are well in excess of the 16k limit, but we still don't have enough to pay for an extension or to relocate. Realistically, that's going to be at least a year away, especially with the cost of living crisis - our energy bills have gone up by £2000 a year, groceries by the same as well. Those two cost increases alone have probably swallowed up any prospect of building our savings going forward.

So will probably still have the savings come our UC managed migration. I'm aware that there is transitional protection under the managed migration, but that it's only for 1 year maximum for capital disregard, and then the savings will be counted making us completely ineligible for UC.

Now I'm wondering what to do for the best? If our child tax credits/UC gets stopped then we'd have to eat into our savings to survive. So we'd never be able to afford a comfortably sized home. And if that's the case then all of our sacrifices over the last 10 years will have been for nothing - we'd have been better off having some luxuries that other families do and not building up our savings. I feel like I'm going to be punished for being prudent.

I've never dealt with the UC people yet, so I've no idea how reasonable they are able to be in these kind of circumstances? Is paying for a home extension allowed? What about redecorating, renovations? Building a summer house/cabin in the garden to give the kids some more space? Rebuilding our crumbling garage?

If we're not in a position to extend the house, then what other ways can we spend the savings that wouldn't be considered deprivation of assets?

A luxury family holiday? (Feels like a waste, but as I said, my kids have never travelled or experienced that so would be holiday of a lifetime).
Investing it in savings for the kids (Junior ISA or start them a pension)?
Buying a new car? (feels like a total waste, but also my current one isn't going to last forever)
Paying down a chunk of the mortgage?
Putting money into a private pension? (I have pretty much zero retirement provision, and my mortgage runs until I'm 70)
Installing solar panels/green energy?

And finally, looking ahead here, am I better off reducing our savings asap, or does UC deprivation of assets apply retrospectively? How far back? From some things I've seen online, it seems as though they can consider pretty much any reduction of capital as deprivation of assets?

Spoonie_Turtle

The key phrase is 'reasonable expenditure'.  What's reasonable for your family's needs.

Deprivation of Capital looks at whether a motivating factor is to increase or enable entitlement to benefits.  So extending your house if you're not overcrowded (although looking at the room sizes, it is possible you might be) and have no needs due to disability, may not be considered reasonable.  Replacing threadbare carpets, replacing a car beyond economical repair, very likely reasonable as long as you're not replacing them with unnecessarily expensive, top-of-the-range things for no reason other than to spend your money.  Paying down a chunk of the mortgage is classed as paying off debt and explicitly classed as not being DoC in the regulations.  Giving some away by putting it into a Junior ISA is unlikely to be allowed.   The other things you mention are much more grey areas.

Info about overcrowding - you would need exact area measurements to know if you are or not, remembering that every room except the kitchen and bathroom count.  (You'd be looking at the space standard, as you certainly have enough rooms.)
https://england.shelter.org.uk/housing_advice/repairs/check_if_your_home_is_overcrowded_by_law
https://researchbriefings.files.parliament.uk/documents/SN01013/SN01013.pdf

justwhat

Means tested benefits do not favour the frugal.  lol .

You should be able to pay off debt and repair your house/extend. As long as these things are considered reasonable.(i would do it sooner rather than later). Even if considered unreasonable  you have nothing to lose. Leaving it until managed migration  is a bad idea in my opinion.

I would probably go the easy route and pay a lump sum to mortgage or move house. Then use future savings for repairs.

We are currently on WTC and are also trying to hold onto it for as long as possible. We have a large sum in savings and would be unable to counter the new UC rules.

I really hate hearing about people in your situation, many argue that some people are very fortunate to be able to save. But it is a life style sacrifice for many.  And you get penalised for it.

Really you want UC if you can get it AND stay on WTC/CTC for as long as possible.  There's not much point in having X savings in the bank knowing when you do spend it, it will probably be on something that  UC will not take into consideration in the long term..

huckster

What about your own independence in dealing with your families finances ?  When you read back your post, you are basing your future plans on what the Government plans to do.  What if Government plans change, as there are huge financial pressures to cut costs and they scrap or change the managed migration savings transitional protection? 

I think you have to try to get to the position where you do not need Government benefit support.

justwhat

huckster said:

What about your own independence in dealing with your families finances ?  When you read back your post, you are basing your future plans on what the Government plans to do.  What if Government plans change, as there are huge financial pressures to cut costs and they scrap or change the managed migration savings transitional protection? 

I think you have to try to get to the position where you do not need Government benefit support.

We plan around or rely on   .gov legislation all the time. Income Tax, community tax, pensions, savings and many other things.  

When you are on the fringe of being eligible for a benefit  it is frugal  to claim that benefit if you are able to.

The OP does not need benefit support as they can live of the savings until it is depleted. That's the new system and the new rules. 

calcotti

justwhat said:

You should be able to pay off debt and repair your house/extend. As long as these things are considered reasonable.

There is no test of whether or not it is reasonable for paying off debt under UC. The regulations specifically state taht paying off debt can never be treated as deprivation of capital.

ElwoodBlues said:

Paying down a chunk of the mortgage?

As a result of the above paying off part of your mortgage can not be treated as deprivation of capital under UC.

justwhat said:

Really you want UC if you can get it AND stay on WTC/CTC for as long as possible.  

You can't get both UC and WTC.CTC. A claim for UC immediately terminates WTC/CTC.

Tax Credits have always been an anomaly in the benefits system. All other means tested benefits have always taken capital into account with some disregard below the threshold. Unfortunately the real terms value of the disregard has reduced significantly over the years because he £16,000 threshold was set a long time ago (can't remember when and can't be bothered to look it up now).

justwhat

justwhat said:

Really you want UC if you can get it AND stay on WTC/CTC for as long as possible.  

You can't get both UC and WTC.CTC. A claim for UC immediately terminates WTC/CTC.

Badly worded by me ...lol 

NedS

You could potentially work around the issue by re-mortgaging to fund the house extension, and then use your capital to pay off the mortgage debt early which would be allowed under UC regulations.

Or if you are not ready to commit to the extension yet, use your capital now to pay down the current mortgage debt, and then re-mortgage in the future to fund the extension.

In either case the net result is that you have put your capital towards the planned extension without potentially breaching deprivation of capital rules.

ElwoodBlues

Spoonie_Turtle said:

The key phrase is 'reasonable expenditure'.  What's reasonable for your family's needs.

Deprivation of Capital looks at whether a motivating factor is to increase or enable entitlement to benefits.  So extending your house if you're not overcrowded (although looking at the room sizes, it is possible you might be) and have no needs due to disability, may not be considered reasonable.  Replacing threadbare carpets, replacing a car beyond economical repair, very likely reasonable as long as you're not replacing them with unnecessarily expensive, top-of-the-range things for no reason other than to spend your money.  Paying down a chunk of the mortgage is classed as paying off debt and explicitly classed as not being DoC in the regulations.  Giving some away by putting it into a Junior ISA is unlikely to be allowed.   The other things you mention are much more grey areas.

Info about overcrowding - you would need exact area measurements to know if you are or not, remembering that every room except the kitchen and bathroom count.  (You'd be looking at the space standard, as you certainly have enough rooms.)
https://england.shelter.org.uk/housing_advice/repairs/check_if_your_home_is_overcrowded_by_law
https://researchbriefings.files.parliament.uk/documents/SN01013/SN01013.pdf

I looked at those overcrowding definitions (even though they don't officially apply to private residences they seem to be accepted as a reasonable standard for living in). They say to completely ignore rooms that are under 50 sq ft. I've measured their (irregular shaped) bedrooms as both being about 55sq ft which technically means that we aren't quite overcrowded despite their bedrooms being tiny. They actually feel smaller than the sq ft because they're in a loft conversion with sloping ceilings, so part of the rooms you can't even stand up in. Perhaps I should also mention that the loft conversion (both of their bedrooms) doesn't have building regs approval (work done long before I moved in)? So it's arguable that they shouldn't be counted as habitable rooms in any circumstance. A major part of the renovation/extension is to rebuild it to make it compliant.

huckster said:

What about your own independence in dealing with your families finances ?  When you read back your post, you are basing your future plans on what the Government plans to do.  What if Government plans change, as there are huge financial pressures to cut costs and they scrap or change the managed migration savings transitional protection? 

I think you have to try to get to the position where you do not need Government benefit support.

Well the transitional protection for savings/capital is only temporary anyway, so I know I can't rely on that medium term. I'm a single parent with 3 kids aged 9 to 13. I'm currently self employed and luckily for us I can mostly fit my work around school hours. The alternative would be to try and find a regular job, but then I'd be reliant on childcare, and then I'd be entitled to claim extra benefits towards the childcare costs. I'd probably end up receiving more in benefits (whether UC or tax credits) than I am. Using the online benefits calculators, I'd have to be earning about 50k a year gross before I become ineligible for UC. The chances of me finding paid employment (and child care) anywhere around here is very slim.

Once my kids are a bit older and I can work longer hours I'll have the opportunity to increase my income that way. In my circumstances that seems like the most logical plan.

I know other people in moderately similar financial circumstances (low income families in receipt of tax credits/UC), except rather than scrimp and save, they've spent on things like cosmetic surgery, iphones, foreign holidays, camper vans and modern cars on finance/lease. They're also living in rented their homes, so also receiving housing benefit as well. In theory I could sell my house and rent instead, and then I'd be eligible for considerable housing benefit too. So me being a homeowner is saving public money.

Because of the capital restrictions on UC, it's actively disincentivising people from saving. So many people will never get out of benefits dependence because they'll never manage to save for a house deposit, and they've been conditioned for so long to live hand to mouth by the benefits system. All I've managed to do differently is to regularly save about £50 a week over the last 10 years. It looks a lot now I've built that up, but it's small chunks over a long time.

My ex is long term unemployed and living entirely on UC (receiving even more than I do as a single parent family). So that also means I'm not receiving any child maintenance at all, which most other single parents do (and child maintenance is disregarded for benefits purposes). I know of other single parents who've been receiving £1000 a month in child maintenance on top of their benefits payments, all completely above board.

I could spend all my savings on legitimately renovating our existing house to a reasonable standard without even considering extending it (that I'd probably need to remortgage for). Kitchen, bathroom, gas central heating, carpets/flooring are all 20+ years old, front door is rotten, back door is warped to the point of being insecure, double glazing has failed and draughty. The list goes on. Might it look dubious to the UC assessors if I were to spend a large sum on the house in a short space of time? 

calcotti said:

justwhat said:

You should be able to pay off debt and repair your house/extend. As long as these things are considered reasonable.

There is no test of whether or not it is reasonable for paying off debt under UC. The regulations specifically state taht paying off debt can never be treated as deprivation of capital.

ElwoodBlues said:

Paying down a chunk of the mortgage?

As a result of the above paying off part of your mortgage can not be treated as deprivation of capital under UC.

justwhat said:

Really you want UC if you can get it AND stay on WTC/CTC for as long as possible.  

You can't get both UC and WTC.CTC. A claim for UC immediately terminates WTC/CTC.

Tax Credits have always been an anomaly in the benefits system. All other means tested benefits have always taken capital into account with some disregard below the threshold. Unfortunately the real terms value of the disregard has reduced significantly over the years because he £16,000 threshold was set a long time ago (can't remember when and can't be bothered to look it up now).

Thanks, that makes it sound like it is acceptable to make a lump sum mortgage overpayment. I've read on other places (rightsnet) where professionals seem to think that's a grey area because overpaying a mortgage is not necessary to service the debt, and deliberately reducing UC eligible capital by switching it to disregarded capital (private home equity) could be considered deprivation of (eligible) assets. At the moment my savings are earning about the same interest as the mortgage is costing me, but that's likely to change early next year as my current cheap mortgage fix ends and current rates are much higher, so at that point it will make genuine financial sense to use my savings to overpay the mortgage (penalty free at that point too).

You're right that the thresholds are now looking unreasonably low, same as most other benefits and tax thresholds that have been eroded by inflation over the last decade or so. The starting point for capital to start affecting UC is £6000. Which might sound a lot, but for a working couple that's only going to be a couple of months of household income. Yet the general advice is to have a rainy day fund of 6 months worth. The 16k total cut off is particularly brutal, why not carry on the taper decrease that works from 6 to 16?

HillStreetBlues

ElwoodBlues said:

I've read on other places (rightsnet) where professionals seem to think that's a grey area because overpaying a mortgage is not necessary to service the debt, and deliberately reducing UC eligible capital by switching it to disregarded capital (private home equity) could be considered deprivation of (eligible) assets.

I thought that might be the rule under different benefits such as ESA.

calcotti

ElwoodBlues said:In theory I could sell my house and rent instead, and then I'd be eligible for considerable housing benefit too. 

But then you'd have even more capital and would not be eligible for means tested benefits.

ElwoodBlues said:Thanks, that makes it sound like it is acceptable to make a lump sum mortgage overpayment. I've read on other places (rightsnet) where professionals seem to think that's a grey area because overpaying a mortgage is not necessary to service the debt, and deliberately reducing UC eligible capital by switching it to disregarded capital (private home equity) could be considered deprivation of (eligible) assets. 

Are you sure that those discussions referred to UC and not to legacy benefits. The UC regulations are, in my opinion, clear. Regulation 50 of the Universal Credit Regulations 2013 says

50.—(1) A person is to be treated as possessing capital of which the person has deprived themselves for the purpose of securing entitlement to universal credit or to an increased amount of universal credit.
(2) A person is not to be treated as depriving themselves of capital if the person disposes of it for the purposes of—
(a) reducing or paying a debt owed by the person; or
(b) purchasing goods or services if the expenditure was reasonable in the circumstances of the person's case.

The rules were different for legacy benefits which said that paying off debt was not deprivation if the debt was immediately repayable which a mortgage isn't and therefore paying off a mortgage could breach the rules. However no such limitation applies to UC.

ElwoodBlues said: The 16k total cut off is particularly brutal, 

I agree.