Over the last few months we have had a number of questions on the above, and on review of the details of how Tax Credits and Universal credits work it has highlighted a few issues.
If you are receiving Tax Credits and invest in property, you need to be conscious of any changes that may impact you. For any families that may be reliant on Tax Credits this is very important to be aware of.
The Tax Credits system operates under the approach that it ignores any assets or investments and simply reviews the income that you are receiving. Then, based on this, it will assess you to determine what tax credits you receive. This means that if you have one property providing an income of £6,000 then this is what you will report, and you will receive whatever amount is agreed with them.
The Universal Credit System works on similar lines to other approaches such as Pension Credits. The key difference is that it doesn’t just take account of your income, it also looks at what assets you hold. The one thing it ignores is your own home, or should I say the place that you reside, whether owned or rented. For each person, it allows up to £16,000 of Savings (or capital assets) to be held and then, if you have greater than this, you cannot make a claim.
What this means is that if you own a property, for example, worth £100,000 with a 75% mortgage, which means that you will have equity in the property of £25,000, you will no longer be eligible for Universal Credits.
The other impact it may have is that if you are currently claiming tax credits and have a change of circumstances, including change of relationship status or lose your job, you may lose the claim immediately.
There is a transitional protection process which means that when they transition you to the new system you will not lose out in cash terms where your circumstances stay the same. You will be entitled to receive the benefit for up to 12 months then you will be reassessed under the new criteria.
Ensure that you review the changes that are coming for your position to ensure you are informed about how you will be impacted, if it will affect you.
October 10th, 2019