currently getting universal credit but think i need to start drawdown on my sipp. How much do i lose

tpeter

Hello

i hope this is the right section to post this as it is Benefits / pensions

i am currently unemployed , partner works, have 2 kids over 12 and  getting around £2500 in Universal credit per year

I have a sipp with £80 k in and was thinking of taking funds out of this tax year.

If i was to take say 16k out of my sipp ( 4 k tax free and 12k taxable but will use my personal allowance)

any idea if i will lose all my universal credit or just part of it.

thank you

MallyGirl

are you at least 55?

FIREDreamer

The taxable element reduces universal credit £1 for £1.

Not sure about the tax free cash - that might just count as capital.

kaMelo

It depends how you take the money out as to how UC treat the money. Ad-hoc irregular withdrawals are classed as capital whereas withdrawals that form a regular pattern in either amount and/or frequency will be classed as income.

If you have capital below £6,000 it has no effect on your UC award, capital of £6,000 and above is subject to a tapered deduction of £4.35 per £250 (or part thereof) from your UC award.  e.g. Capital of £6,249 would result in a deduction of £4.35, capital of £6,250 would result in a deduction of £8.70 etc.

Having capital of £16,000 or above  would end your entitlement to any means tested benefits.
Any amount of pension you withdraw that is classed as income would reduce your UC pound for pound.


In your scenario, a £16,000 lump sum withdrawal would be classed as capital, unless you spent some of it before the end of your assessment period your UC would end. Unless it is spent paying down debts, any spending may be looked at as to whether it was reasonable or not

tpeter

MallyGirl said:

are you at least 55?

yes i am .

tpeter

kaMelo said:

It depends how you take the money out as to how UC treat the money. Ad-hoc irregular withdrawals are classed as capital whereas withdrawals that form a regular pattern in either amount and/or frequency will be classed as income.

If you have capital below £6,000 it has no effect on your UC award, capital of £6,000 and above is subject to a tapered deduction of £4.35 per £250 (or part thereof) from your UC award.  e.g. Capital of £6,249 would result in a deduction of £4.35, capital of £6,250 would result in a deduction of £8.70 etc.

Having capital of £16,000 or above  would end your entitlement to any means tested benefits.
Any amount of pension you withdraw that is classed as income would reduce your UC pound for pound.


In your scenario, a £16,000 lump sum withdrawal would be classed as capital, unless you spent some of it before the end of your assessment period your UC would end. Unless it is spent paying down debts, any spending may be looked at as to whether it was reasonable or not

thank you for your reply. Really appreciated. I was transferred onto UC from working/tax credits for one year and i will not be entitled to it when it ends in May 2025 as will have more than16k in cash.

Ultimately my question is

If i take 12 k out of my sipp this tax year how much will i lose in UC?

will i have to pay back the £2500 or will i be able to keep some

my other option is to take out 24 k next tax year....and techncally paying 20% tax on the 12k additional if you understand what i am trying to do.

Hope this makes sense.

kaMelo

If you already have more than £16000 in capital and that is already subject to the transitional protection disregard for twelve months then no matter how much you withdraw as a one off, it will have no affect on your UC.

tpeter

kaMelo said:

If you already have more than £16000 in capital and that is already subject to the transitional protection disregard for twelve months then no matter how much you withdraw as a one off, it will have no affect on your UC.

thank you for your reply

really. wow. that could be great news.I do not understand how i phoned UC(more than once) and they cannot tell me any of this information.

tpeter

kaMelo said:

If you already have more than £16000 in capital and that is already subject to the transitional protection disregard for twelve months then no matter how much you withdraw as a one off, it will have no affect on your UC.

sorry to bother you again. I just realised that i will be taking 4 k tax free...but the 12 will be taxable . Does this change what you wrote before. I am very confused about all this. I just wanted to try and sort thois aspect out before i started the drawdown as its all new to me

kaMelo

tpeter said:

kaMelo said:

If you already have more than £16000 in capital and that is already subject to the transitional protection disregard for twelve months then no matter how much you withdraw as a one off, it will have no affect on your UC.

sorry to bother you again. I just realised that i will be taking 4 k tax free...but the 12 will be taxable . Does this change what you wrote before. I am very confused about all this. I just wanted to try and sort thois aspect out before i started the drawdown as its all new to me

The short answer is no, it won't make any difference.

The long answer,
As you already have capital in excess of £16,000 normally you would not qualify for UC. However, as you moved from tax credits to UC under managed migration, transitional protection allows you a disregard for any amount of capital  above £16,000 for twelve months. (Being specific, it's actually twelve payments of UC)   As you're starting point is already above £16,000 the amount you withdraw or whether it's taxable or not is not relevant as it will all be disregarded under transitional protection rules for as long as they apply to you which, from what you've said, will be until May 2025.

The only way it could have any effect is if the withdrawal were deemed income for UC purposes. but as this is your first withdrawal from the pension that would be impossible.

Grumpy_chap

tpeter said:

Hello

i hope this is the right section to post this as it is Benefits / pensions

i am currently unemployed , partner works, have 2 kids over 12 and  getting around £2500 in Universal credit per year

I have a sipp with £80 k in and was thinking of taking funds out of this tax year.

If i was to take say 16k out of my sipp ( 4 k tax free and 12k taxable but will use my personal allowance)

any idea if i will lose all my universal credit or just part of it.

thank you

If you have £80k pension fund and you take £16k from that now (before state pension age), how will you finance your retirement?