Migrating to Universal Credit from Working Tax Credits - Pension lump sum

Hi,

i'm just checking I have this right.

I am receiving working tax credits and I have received my notice to migrate to Universal Credit.  I understand that I will receive a transitional payment for a year.  From my previous investigation I realise that at the end of the transitioinal year I am unlikely to be eligible for any benefit.

In September, I received a lump sum of £12,000 from a local authority pension.  Under working tax credit I understand that I didn't have to declare this.   This lump sum puts me just over the £16,000 in savings.

But I am now fretting when I fill in the Universal Credit that this is going to cause a problem.  I truly didn't think I had to declare it under working tax credit.

I Intend to use the lump sum to replace my kitchen which is falling apart.  If I can find a builder to do the work.

Comments

  • peteuk
    peteuk Posts: 1,224
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    You are correct, you didn’t nee to declare savings whilst on WTC.  But you will need to declare anything above £6K and further more anything above £16K will stop your entitlement to claim UC.

    If you need a new kitchen then it’s reasonable to spend some of that money to repair/replace it.  However if you spend the whole amount and end up with solid gold taps and high end Italian marble work tops then it will be seen differently. (Haven’t a clue how much a new kitchen costs sorry - but you get the idea).

    As you are migrating you will have a period of protection, however I believe this will change once your savings drops below the £16/6K. 
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  • Spoonie_Turtle
    Spoonie_Turtle Posts: 8,164
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    edited 25 November 2023 at 4:24PM
    nappy501 said:
    In September, I received a lump sum of £12,000 from a local authority pension.  Under working tax credit I understand that I didn't have to declare this.   This lump sum puts me just over the £16,000 in savings.

    But I am now fretting when I fill in the Universal Credit that this is going to cause a problem.  I truly didn't think I had to declare it under working tax credit.

    I Intend to use the lump sum to replace my kitchen which is falling apart.  If I can find a builder to do the work.
    You didn't have to report it to TC, you only had to report anything if you were receiving more than £300 in interest from it.  Edit: I was wrong, this is not always the case with pension lump sums - see later responses.

    What problem do you think it is going to cause for UC?  The money over the £16,000 threshold will be disregarded for 12 months.

    You might even still be able to claim if you have paid (some/all) for your kitchen to be done within that year.  A decision maker will have to decide whether they think you spent the money in order to continue/increase benefit entitlement (the burden of proof is supposed to be on them) - do you have evidence from now or before that you already intended to use the lump sum for that?  If they decide you did deliberately spend money to get down below the £16k threshold, you can appeal it.
  • nappy501
    nappy501 Posts: 103
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    Thank you to@Spoonie_Turtle and @peteuk.  I was panicking unnecessarily.  I found this later https://www.moneyhelper.org.uk/en/benefits/problems-with-benefits/how-do-savings-and-lump-sum-pay-outs-affect-benefits once I had calmed down a bit.
  • nappy501 said:
    Hi,

    i'm just checking I have this right.

    I am receiving working tax credits and I have received my notice to migrate to Universal Credit.  I understand that I will receive a transitional payment for a year.  From my previous investigation I realise that at the end of the transitioinal year I am unlikely to be eligible for any benefit.

    In September, I received a lump sum of £12,000 from a local authority pension.  Under working tax credit I understand that I didn't have to declare this.   This lump sum puts me just over the £16,000 in savings.

    But I am now fretting when I fill in the Universal Credit that this is going to cause a problem.  I truly didn't think I had to declare it under working tax credit.

    I Intend to use the lump sum to replace my kitchen which is falling apart.  If I can find a builder to do the work.
    Was the lump sum tax-free? (within the 25% you are allowed to take tax-free) if so then what people said above is right as capital doesn't count for tax credits, only any interest over £300 (if you don't have other income already using up the £300 disregard). However, taking money from a pension outside of the 25% tax-free part counts as pension income for tax credits. 
  • Sorry for asking a question on same thread but it is along similar lines.
    My partner and I receive child tax credits (not working tax credits) last year my partner withdrew her pension from Scottish Widows just over £13k in total, after tax just over £9k. We mistakenly believed that we wouldn't have to declare it to child tax credits but after seeking advice on here discovered we did, so we included it, which has led to a overpayment which we are currently paying back and much lower tax credits payments for the current year. 

    Reading this thread has set me thinking once again. Were we right in declaring the whole £9k after tax as income for child tax credits purposes?

    Many thanks.
  • Sorry for asking a question on same thread but it is along similar lines.
    My partner and I receive child tax credits (not working tax credits) last year my partner withdrew her pension from Scottish Widows just over £13k in total, after tax just over £9k. We mistakenly believed that we wouldn't have to declare it to child tax credits but after seeking advice on here discovered we did, so we included it, which has led to a overpayment which we are currently paying back and much lower tax credits payments for the current year. 

    Reading this thread has set me thinking once again. Were we right in declaring the whole £9k after tax as income for child tax credits purposes?

    Many thanks.
    I think that you may have been better off to start your own thread.

    Did your partner have a tax-free lump sum from her pension? If so, you would not need to include that lump sum for Tax Credits. You would, however need to declare everything else before tax was deducted, see: https://www.gov.uk/guidance/tax-credits-working-out-income#other-income
  • kaMelo
    kaMelo Posts: 2,285
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    As @Icequeen1 said above, was some (or all) of the money part of the tax free lump sum element or was some (or all) of it part of the remaining 75% subject to income tax?

  • Thanks, yes the details from the letter are as follows,

    Payment amount £10,235
    This is made up from a tax free amount of £3281
    And a taxable amount of £9844
    Less the tax deducted £2890

    So we declared the £9844, on reflection I think the £9844 was actually on the review letter they sent to us anyway. I do think the total amount was around or just over £13k.

    We obviously did make a mistake by taking it at that particular time, but no use crying over spilled milk, and partner did get the tax back later on as she didn't fall into tax bracket.

    Thanks.
  • Thanks, yes the details from the letter are as follows,

    Payment amount £10,235
    This is made up from a tax free amount of £3281
    And a taxable amount of £9844
    Less the tax deducted £2890

    So we declared the £9844, on reflection I think the £9844 was actually on the review letter they sent to us anyway. I do think the total amount was around or just over £13k.

    We obviously did make a mistake by taking it at that particular time, but no use crying over spilled milk, and partner did get the tax back later on as she didn't fall into tax bracket.

    Thanks.
    You were right to declare the 9844 as income as it was taxable. The first few people who replied to this thread focused on whether capital is relevant for tax credits - which it isn't (Except for interest over the disregard if applicable) but as I said above, the taxable element of a lump sum is counted as income for tax credits. 
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