Millions of people across the UK rely on Universal Credit to help cover their living expenses. However, many individuals are unaware that certain financial changes, such as receiving a lump sum, can significantly impact their eligibility for the benefit.
In some cases, it could even result in the cessation of payments. Here’s what you need to know about how changes in your financial situation may affect your Universal Credit.
What Changes Could Impact Your Universal Credit?
There are various financial changes that can affect your Universal Credit entitlement. Receiving a lump sum, whether from inheritance, a lottery prize, premium bonds, or any other source of cash, can push you over the threshold that determines your eligibility.
Other financial events, such as receiving redundancy pay, life insurance payouts, pension lump sums, divorce settlements, or compensation payments, may also result in reduced or stopped benefits.
Universal Credit is means-tested, which means it depends on the amount of money you have in savings and investments. According to Sarah Coles, a personal finance expert at Hargreaves Lansdown, it’s vital to inform the Department for Work and Pensions (DWP) if you expect a lump sum that could affect your savings and investments total.
The Savings and Investments Threshold
As per Gov.uk, the maximum savings you can have while still qualifying for Universal Credit is £16,000. If you receive a sum that pushes your savings beyond this amount, you will most likely lose your entitlement to Universal Credit altogether. Here’s how it works:
- If your total savings and investments are under £6,000, it won’t impact your benefits.
- If your savings exceed £6,000 but are below £16,000, you will still qualify for benefits, but your payment will be reduced.
- If your savings go beyond £16,000, you will no longer receive Universal Credit.
For every £250 in savings between £6,000 and £16,000, your payments will decrease by £4.35.
It’s crucial to note that if you live with a partner, their savings will be included in the calculation. However, children’s savings—such as money in their names, including child savings accounts and Child Trust Funds—won’t count towards the limit.
Reporting Changes to the DWP
Failing to report a significant change in your financial situation can lead to overpayments. If the DWP discovers that you have not declared changes to your savings or lump sums, you may be asked to repay the money, and it could affect your future eligibility.
It’s also important to know that attempting to avoid receiving inheritance to keep your benefits is not allowed. Charlene Young, a savings expert at AJ Bell, emphasized that deliberately refusing inheritance or giving away money won’t help you retain your benefits.
However, you are allowed to use your savings to pay off debt or purchase essential items. If you’re concerned about losing benefits due to receiving inheritance, there are ways to plan ahead.
Protecting Benefits with a Trust
If you’re worried about a loved one’s inheritance affecting their benefits, setting up a discretionary trust can help protect the funds.
Lawson-West Solicitors recommend this approach for people who want to ensure their inheritance reaches the beneficiary without impacting their benefits. A trust can also be used to provide rent-free accommodation, which won’t be counted towards their savings.
It’s essential to stay informed and communicate with the DWP about any financial changes that could affect your Universal Credit entitlement. By understanding the rules around savings limits and lump sums, you can avoid overpayments or losing your benefits altogether.
Taking proactive steps, such as using a trust, can help safeguard inheritance or other large sums for loved ones who rely on government support.
FAQs
What happens if my savings exceed the £16,000 limit?
If your savings exceed £16,000, you will no longer be eligible to receive Universal Credit. The DWP will stop your payments entirely.
Can my partner’s savings affect my Universal Credit?
Yes, if you live with a partner, their savings will be included in the overall calculation for Universal Credit eligibility.
How can I protect my inheritance from affecting my benefits?
You can set up a discretionary trust to ensure that your inheritance or lump sum does not impact your benefits. This is a legal arrangement that can safeguard funds for the person receiving benefits.