Funds from sale - will this affect my Universal Credit?

gingerbreadlady1980

Hi - I hope someone can help. I am on universal credit at the moment - I had a migration notice from Tax credits that gives me protected status for 12 months until Dec this year. I’ve two rental properties that I am selling and declared to U/C so under protected status rule my capital is disregarded for 12 months. What I want to know is - I am selling both my rentals and want to use the capital to reduce the cost of my own mortgage of my personal residence - U/C states money can be used to reduce a debt - would my mortgage be classed as a debt? Will the capital from the sales be allowed to reduce my personal mortgage without it affecting my U/C or will it be classed as deprivation of capital? Any help is appreciated thank you. I can’t get a straight answer from U/C by the way! 

Grumpy_chap

gingerbreadlady1980 said:

U/C states money can be used to reduce a debt - would my mortgage be classed as a debt? 

Yes.  That is the case.

TELLIT01

Are either of the rental properties still occupied?  If so, I wonder if that income could affect your entitlement to UC.  It's a question as I don't know whether or not it would.

Newcad

Were your savings over £16k when you migrated to UC?

If yes then that's fine and you can use any of it or any more that you get to pay off your mortgage. (see the PS below).

But if not then you can't add/use the 12 month saving disregard later. It can only apply if you had over £16k at the time of migration.

In other words if you were below £16k when you migrated then the savings disregard does not apply and going over £16k after you have migrated will end entitlement to UC.

(The same happens if you drop below £16k, the disregard ends and if you then go back above £16k UC ends).

PS. If you are selling two properties then even after paying off your mortgage you are likely to still have more than £16k left at the end of any disregard, so deprivation becomes a moot point as UC would end anyway.

subjecttocontract

Don't forget to pay the dreaded Capital Gains Tax on your profits.

Grumpy_chap

Newcad said:

Were your savings over £16k when you migrated to UC?

I understood that "savings" in the context of UC was any kind of capital, so the equity in the two rental properties is "savings" that the OP had at the date of migration from TC.  
If that is correct, the OP is not adding to the "savings" by selling the two rental properties but the "savings" are being moved from one form to another.
My understanding may be incorrect in which case I am sure I will be corrected.

huckster

@Grumpy_chap correct  re last comment about savings.

@TELLIT01
Rental income counts as capital.

Newcad

Doh, of course the two properties would also come under savings and capital for UC so there would be over £16K at migration.
(My excuse is that I was in the pub when I typed that and beer may have given me a brain fart).

There again the main point that I wanted to make ended up being the PS - that unless it's a very big mortgage to pay off then the proceeds from the sale of two properties should more than cover it and so probably mean there will still be more than £16K left. In which case UC will end after the 12 months anyway so deprivation is not even a consideration (unless the excess is then spent on something other than paying off the mortgage).

gingerbreadlady1980

Hi all - just to clarify- I had both properties and declared whilst on TC and during the Migration notice - one property is now sold (money in the bank and waiting to pay off my mortgage) and the other is in the market but not tenanted. And yes the dreaded CGT is a horrible constant thought 😢

gingerbreadlady1980

And after both sales, I will still owe in my mortgage so there won’t be any capital left over.

Newcad

Thanks for the clarification.

You should be fine in terms of UC then, paying a mortgage isn't deprivation, and once your savings/capital drops below £16k your UC becomes 'normal' UC and so will continue beyond the 12 months until/unless something stops it under under normal UC rules.