Benefits and Inheritance

HillStreetBlues

DE_612183 said:

What would happen if the person receiving the payment, t hen paid it all into a pension?

Locking monies away to avoid a reduction/ loss of income related benefits is deprivation of capital, and will be classed as having the money. (you have a certain allowance to put into pension, but their are limits)
Giving the money away would be treated the same.
If the person has a mortgage  then that is fine to pay off (as is any other debt).

dekaspace1

A friend of mine last year got about 100k through after his father died and he sold his house, he lost his UC straight away even though he quickly bought a house of his own for 80k and had other expenses.

I can see in situations like that when getting an inheritance can affect it, he was getting the housing benefit element in the UC before that, he now has higher CT bills, has to do work on the house so is worse off in that sense and his health means he only works 8 hours a week at minimum wage so his remainder has gone down very quickly.

I'd say that was a no win for him.

kaMelo

DE_612183 said:

What would happen if the person receiving the payment, t hen paid it all into a pension?

Do they earn enough to do that?

DE_612183

kaMelo said:

DE_612183 said:

What would happen if the person receiving the payment, t hen paid it all into a pension?

Do they earn enough to do that?

My understanding was that you could pay as much as you like into a pension - the limits only apply to the amount that you get tax relief on.

So for example - if you don't have any job and are on benefits you pay in say £20,000

£2880 you get tax relief on the other £17120  you dont.

TELLIT01

dekaspace1 said:

A friend of mine last year got about 100k through after his father died and he sold his house, he lost his UC straight away even though he quickly bought a house of his own for 80k and had other expenses.

I can see in situations like that when getting an inheritance can affect it, he was getting the housing benefit element in the UC before that, he now has higher CT bills, has to do work on the house so is worse off in that sense and his health means he only works 8 hours a week at minimum wage so his remainder has gone down very quickly.

I'd say that was a no win for him.

It's only a no-win for them because they didn't think things through before purchasing a property.  That wouldn't happen in a couple of weeks so they were always going to lose their entitlement to UC.  Assuming they lived in a rented property before, they could have stayed there and claimed UC again once the figure dropped below £16k.  Now they have all the running costs of a property and little money to do it with.

Alice_Holt

DE_612183 said:

kaMelo said:

DE_612183 said:

What would happen if the person receiving the payment, t hen paid it all into a pension?

Do they earn enough to do that?

My understanding was that you could pay as much as you like into a pension - the limits only apply to the amount that you get tax relief on.

So for example - if you don't have any job and are on benefits you pay in say £20,000

£2880 you get tax relief on the other £17120  you dont.

     Putting excess money into a pension with the intention of retaining means tested benefits will very likely be viewed as deprivation of capital.

    Especially as the situation you describe makes little investment sense. As 75% of the pension income is taxable, it's financially foolish to make contributions which don't attract tax relief, (using the ISA allowance is more sensible).  The only reason to do that in your situation is to hide the money away in an attempt to retain means tested benefits.   

  It really won't end well. The outcome of this 'cunning plan' could result in destitution for the individual (if they are below the age to access their pension fund), as the DWP will assume notional capital (diminishing). 
https://england.shelter.org.uk/professional_resources/legal/benefits/universal_credit/universal_credit_capital_rules#:~:text=Diminishing notional capital,capital will reduce over time.

poppy12345

DE_612183 said:

kaMelo said:

DE_612183 said:

What would happen if the person receiving the payment, t hen paid it all into a pension?

Do they earn enough to do that?

My understanding was that you could pay as much as you like into a pension - the limits only apply to the amount that you get tax relief on.

So for example - if you don't have any job and are on benefits you pay in say £20,000

£2880 you get tax relief on the other £17120  you don't.

That's not correct. If you're not earning then the most you can put in is £2880/year which will be increased to £3,600.https://www.ajbell.co.uk/pensions/contributing-to-your-pension

HillStreetBlues

poppy12345 said:

DE_612183 said:

kaMelo said:

DE_612183 said:

What would happen if the person receiving the payment, t hen paid it all into a pension?

Do they earn enough to do that?

My understanding was that you could pay as much as you like into a pension - the limits only apply to the amount that you get tax relief on.

So for example - if you don't have any job and are on benefits you pay in say £20,000

£2880 you get tax relief on the other £17120  you don't.

That's not correct. If you're not earning then the most you can put in is £2880/year which will be increased to £3,600.https://www.ajbell.co.uk/pensions/contributing-to-your-pension

DE_612183 is correct  there is no limit to how much you can put into a pension, the limit applies to how much tax relief.
https://www.gov.uk/government/publications/rates-and-allowances-pension-schemes/pension-schemes-rates

Member contributions

There’s no limit on the amount that an individual can contribute to a registered pension scheme. If you’re a UK resident aged under 75 you may receive tax relief on your contributions to registered pension schemes.

Tax relief is limited to relief on contributions up to the higher of:

• 100% of your UK taxable earnings
• £3,600

EDIT. The rate different is a person pays in £2880 tax man pays £720 gives £3,600 total, so the £3,600 isn't an increase, it just depends on how you look at it.

HillStreetBlues

There is case law on this issue I will try to find it at some point.
A disabled person was left a sum of money in an inheritance, but neither a Disabled or Discretionary Trust was set up.
The executor wanted to set up a Trust for the money so the benefactor kept their income related benefits,
It went to the Upper Tribunal and it was found a Trust couldn't be set up after the fact.

If there was a way to avoid an inheritance affecting IRB then there would be some form of Case law, and it would be pointed to in cases such as this.
The fact there isn't points to the fact there isn't isn't a way round it after the fact.

EDIT Case Law
https://www.bailii.org/ew/cases/EWCOP/2022/49.html
It was Court of Protection, not Upper Tribunal that I stated above.

kaMelo

DE_612183 said:

kaMelo said:

DE_612183 said:

What would happen if the person receiving the payment, t hen paid it all into a pension?

Do they earn enough to do that?

My understanding was that you could pay as much as you like into a pension - the limits only apply to the amount that you get tax relief on.

So for example - if you don't have any job and are on benefits you pay in say £20,000

£2880 you get tax relief on the other £17120  you dont.

Whilst that is true in an absolute sense, there are limits for tax purposes and making personal contributions into a pension scheme when they don't attract tax relief on the way in is a bad idea because, bar the TFLS, they are taxable on the way out.
I note you don't mention how much the inheritance is but if significant enough then there is also the annual allowance of £60,000. Contributions in excess of this amount are taxable on the way in as well as on the way out, to exceed the annual allowance deliberately is an absolutely terrible idea.

As executor your remit is to distribute the estate to the beneficiaries in a timely manner. Actively trying to find  ways to do this whilst circumventing rules around means tested benefits is stretching your remit to the limit if not beyond.
Maybe it's a stupid question but I'll ask it anyway, what is so bad about someone who has received an inheritance supporting themselves from that inheritance?.

HillStreetBlues said:

There is case law on this issue I will try to find it at some point.
A disabled person was left a sum of money in an inheritance, but neither a Disabled or Discretionary Trust was set up.
The executor wanted to set up a Trust for the money so the benefactor kept their income related benefits,
It went to the Upper Tribunal and it was found a Trust couldn't be set up after the fact.

If there was a way to avoid an inheritance affecting IRB then there would be some form of Case law, and it would be pointed to in cases such as this.
The fact there isn't points to the fact there isn't isn't a way round it after the fact.

EDIT Case Law
https://www.bailii.org/ew/cases/EWCOP/2022/49.html
It was Court of Protection, not Upper Tribunal that I stated above.

There was this case, although very specific circumstances.
https://www.courtofprotectionhub.uk/cases/lms-re-settlement-of-property-into-a-trust-2020-ewcop-52