Inheritance and benefits question.

[kalidarkone]

My ex was left 54K by his late mum about 5 years ago. He has not as yet contacted the solicitor so he can accept it because he has major anxiety and depression issues anyway, but added to that has wound himself up that because he has not accessed the money for so long that he will have to pay tax credits and HB back.

His situation is that:
He is self employed and on a very low income (less than 10K a year) and an artist.
He has one dependent child ,who is of adult age with high functioning aspergers, anxiety and depression who receives PIP. He gets HB for his 3 bed council maisonette.

On declaring it obviously his HB and tax credits would be affected and he has no issue with this. His concern is in leaving it for so long he will have to pay back 5 years of HB and tax credits.

Would he have to pay it back?

Cheers xxx

 

[Puddy_Tat]

I'm too long out of the benefits game for any advice I can give to be worthwhile any more, but would say this is going to need handling with care, and may be worth seeking out a specialist benefits adviser (CAB, local welfare rights unit, law centre or some such)

Keeping some account of how he spends this money may also be an issue - as chances are at some point, he will need to go back on claiming means tested benefits. there is the concept of 'intentionally depriving yourself of capital' so as to come under the savings threshold again. i'm too out of touch to know just what is / isn't acceptable.

utlimately, carrying on ignoring the situation is not going to make matters any better, but i'm also fully aware this is easy for someone who's not involved to say...

 

[muscovyduck]

Might be worth contacting a financial advisor or speak to the solicitor dealing with it about whether it could go in a trust and if that would be a suitable work around?

 

[weepiper]

My ex was left 54K by his late mum about 5 years ago. He has not as yet contacted the solicitor so he can accept it because he has major anxiety and depression issues anyway, but added to that has wound himself up that because he has not accessed the money for so long that he will have to pay tax credits and HB back.

His situation is that:
He is self employed and on a very low income (less than 10K a year) and an artist.
He has one dependent child ,who is of adult age with high functioning aspergers, anxiety and depression who receives PIP. He gets HB for his 3 bed council maisonette.

On declaring it obviously his HB and tax credits would be affected and he has no issue with this. His concern is in leaving it for so long he will have to pay back 5 years of HB and tax credits.

Would he have to pay it back?

Cheers xxx

My understanding is that he doesn't have to declare it and they don't count it as capital until it hits a bank account in his name.

Inheriting and How It Could Affect You - Final Duties

Most benefits are means tested. This means that once income and savings exceed certain threshold benefits reduce and eventually cease.

www.finalduties.co.uk

 

[Puddy_Tat]

Might be worth contacting a financial advisor or speak to the solicitor dealing with it about whether it could go in a trust and if that would be a suitable work around?

that's an interesting thought - i think there is a legal process where person who stands to inherit can agree that some of the inheritance can go to someone else (so in this case, it may be possible for a proportion of the inheritance to go to - or in trust for - dependent child) but just how this works, i'm not entirely sure. this would almost certainly need the involvement of a solicitor.

 

[Kevbad the Bad]

that's an interesting thought - i think there is a legal process where person who stands to inherit can agree that some of the inheritance can go to someone else (so in this case, it may be possible for a proportion of the inheritance to go to - or in trust for - dependent child) but just how this works, i'm not entirely sure. this would almost certainly need the involvement of a solicitor.

That's true. It's called a deed of variation, but I believe there is a strict two year time limit on it, so probably not allowed in this case.

 

[scifisam]

My understanding is that he doesn't have to declare it and they don't count it as capital until it hits a bank account in his name.

Inheriting and How It Could Affect You - Final Duties

Most benefits are means tested. This means that once income and savings exceed certain threshold benefits reduce and eventually cease.

www.finalduties.co.uk

Yes. That says:

Where an inheritance is received it must be reported to DWP once it hits the beneficiary’s bank account. Until then, the money is deemed not to be theirs and DWP does not want to know.


Which is fair enough, since it takes a long time for inheritances to actually be paid (usually a year so) even if you contact them in a timely way. He didn't have the money - he still doesn't. I mean, maybe he should clarify it with a lawyer anyway, but it seems clear-cut to me.

 

[muscovyduck]

that's an interesting thought - i think there is a legal process where person who stands to inherit can agree that some of the inheritance can go to someone else (so in this case, it may be possible for a proportion of the inheritance to go to - or in trust for - dependent child) but just how this works, i'm not entirely sure. this would almost certainly need the involvement of a solicitor.

I think the options might even be a bit wider than that. So like, I think a in a will a parent could leave an adult child with a severe learning disability money for enrichment things like holidays by putting it in a trust and that couldn't be touched by the state (who'd drain it over time due to benefit rules and care costs). So potentially the same mechanic could be applied here. But my knowledge on this is really really fuzzy and I may not understand things right. The point is though there's a chance there's a workaround and it's worth speaking to some form of inheritance specialist about it (eg a solicitor)

 

[kalidarkone]

Have advised him to speak to CAB and sent him the info weepiper posted.

A solicitor is ideal but he has no money to pay one with.

Thanks all x

 

[scifisam]

I think the options might even be a bit wider than that. So like, I think a in a will a parent could leave an adult child with a severe learning disability money for enrichment things like holidays by putting it in a trust and that couldn't be touched by the state (who'd drain it over time due to benefit rules and care costs). So potentially the same mechanic could be applied here. But my knowledge on this is really really fuzzy and I may not understand things right. The point is though there's a chance there's a workaround and it's worth speaking to some form of inheritance specialist about it (eg a solicitor)

I don't know if Kali will disagree, but it sounds to me like that's the kind of complicated thing that would never work for someone who's too scared to even claim the inheritance.

Any payments from a trust are counted as income for benefits purposes anyway.

 

[Puddy_Tat]

A solicitor is ideal but he has no money to pay one with.

if the inheritance is in the hands of a solicitor, then they will probably be happy to hand it over less their fees, rather than expect payment up front.

 

[sheothebudworths]

He 100% needs advice from someone like a bens advisor - solicitors and financial advisors will most likely be useless in this situation, tbh.

He won't be able to do a Deed of Variation - that would be seen as 'deprivation of capital' and he would be assumed to have the amount he'd passed on. I would also worry about the time that has passed - that they may consider that deprivation, too (can only think there that it'd be extremely useful to have his long term anxiety around it all properly recorded by GP etc).

It wouldn't have been an issue for Tax Credits, which is not means tested, but it will be for HB - and even if they accepted there was a reason for it taking five years and it was therefore decided he didn't have to pay anything back, his legacy ben entitlement to HB would then finish and until he has less than £16k (and he would have to demonstrate, with evidence, that he'd only spent it at his usual rate) he would then have to claim UC for his housing... and therefore for his living costs, too (so his tax credits entitlement would stop, too and he would be fully in the UC system).

I have been in a very similar situation - it's shit and it's complicated - he must get some proper advice and from someone who has a thorough grasp of the bens system.

 

[scifisam]

He 100% needs advice from someone like a bens advisor - solicitors and financial advisors will most likely be useless in this situation, tbh.

He won't be able to do a Deed of Variation - that would be seen as 'deprivation of capital' and he would be assumed to have the amount he'd passed on. I would also worry about the time that has passed - that they may consider that deprivation, too (can only think there that it'd be extremely useful to have his long term anxiety around it all properly recorded by GP etc).

It wouldn't have been an issue for Tax Credits, which is not means tested, but it will be for HB - and even if they accepted there was a reason for it taking five years and it was therefore decided he didn't have to pay anything back, his legacy ben entitlement to HB would then finish and until he has less than £16k (and he would have to demonstrate, with evidence, that he'd only spent it at his usual rate) he would then have to claim UC for his housing... and therefore for his living costs, too (so his tax credits entitlement would stop, too and he would be fully in the UC system).

I have been in a very similar situation - it's shit and it's complicated - he must get some proper advice and from someone who has a thorough grasp of the bens system.

Tax credits are means-tested, aren't they? UC is, working tax credit is/was.

HB is still paid to social housing tenants even if you're on UC.

 

[strung out]

If he's happy to lock the money away for a few years he can put the entire inheritance into a private pension for himself (or as much as he's allowed - you can use previous year's allowances if necessary).

Pensions are (I think) exempt from consideration as deprivation of assets, and he can then draw the money down as required from age 55.

 

[sheothebudworths]

Tax credits are means-tested, aren't they? UC is, working tax credit is/was.

HB is still paid to social housing tenants even if you're on UC.

Sorry, I got my terms muddled there! What I meant was that there is no savings limit with Tax Credits, all you declare there is any interest earned (and even then, only over £500 a year, iirc).

If you ignore the second complication in this situation (that he has chosen -as far as they are likely to argue - not to access the available inheritance for five years, thereby deliberately depriving himself of capital in order to gain from benefits blah blah)... what should happen in the straightforward version is that he would declare it once it hit his bank account at which point his HB entitlement would stop but his TC's wouldn't.

TC's and HB are legacy benefits though, so once those savings were back down to below £16k, he would not be able to make a new claim for HB. He would actually have to make a new claim for UC, so his Tax Credits claim would also stop then and he'd do the whole thing through UC and be permanently stuck with UC conditions.

Not only that but at the point that the money did go back below the threshold, he would also have to account for how it was spent/to demonstrate that he hadn't frittered the money away - poor people are literally not allowed to inherit basically!

 

[sheothebudworths]

If he's happy to lock the money away for a few years he can put the entire inheritance into a private pension for himself (or as much as he's allowed - you can use previous year's allowances if necessary).

Pensions are (I think) exempt from consideration as deprivation of assets, and he can then draw the money down as required from age 55.

I very much doubt this is correct, unfortunately.
An existing pension, yes, but not paying an inheritance into a new one.

The one thing he could do is to use it towards buying a home, in which case nothing would change for a limited time (6-12 months iirc) - Tax Credits would obvs continue but HB would ALSO continue until the home purchase (again though, this is all ignoring the additional problem of the five year wait).

Oh yes and buying a pre-paid funeral plan - that is explicitly allowed/excluded from the deprivation rule.

 

[sheothebudworths]

The one thing mentioned that would defo be worth finding out about is the fact that his son is a dependent adult and whether there may be an allowance made for that, for the money to put into trust for him.

But first off is ensuring they won't demand a huge HB repayment (and more, potentially!) and with all of this stuff - just to make it even more surreal - it is all around 'intention', so he definitely needs some proper advice!

 

[strung out]

I very much doubt this is correct, unfortunately.
An existing pension, yes, but not paying an inheritance into a new one.

I am not a benefits expert so could be wrong, but I'm fairly sure it would be allowed (and if it does have to be an existing pension, then lots of people will have one since the auto enrollment regulations came in).

Relevant bit of the regulations are here unless they've been amended recently: The Tax Credits (Definition and Calculation of Income) Regulations 2002

In calculating income under this Part there shall be deducted the amount of—

(a)any banking charge or commission payable in converting to sterling a payment of income which is made in a currency other than sterling;

(b)any qualifying donation (within the meaning of section 25 of the Finance Act 1990 (donations to charity by individuals)(22)), made by the claimant or, in the case of a joint claim, by either or both of the claimants; and

(c)any contribution made by the claimant, or in the case of a joint claim, by either or both of the claimants to—

(i)a retirement benefits scheme approved under Chapter 1 of Part 14 of the Taxes Act, including a pilots benefit fund approved under section 607 of that Act(23) and a relevant statutory scheme within the meaning of section 611A of that Act(24);

(ii)a retirement annuity contract approved under Chapter 3 of Part 14 of that Act; or

(iii)a personal pension scheme, approved under Chapter 4 of that Part 14 of that Act.

The rationale is that you can't be depriving yourself of assets for something you haven't deprived yourself of (the money is still yours, just inaccessible), and would be seen as prudent financial planning for retirement.

Obviously, speak to a benefits advisor if going down this route!

 

[platinumsage]

I believe that refers to income and not capital.

In any case the maximum someone can contribute to a pension in any one tax year is equal to their earned income in that year, or if they don’t have any relevant earnings, £2880, so it would take many years to place a sizeable inheritance into a SIPP.

 

[sheothebudworths]

Yeah, it's also for Tax Credits, which is not the issue here (there are no restrictions for savings for TC's anyway) - the problem is with the housing benefit claim.

 

[strung out]

I believe that refers to income and not capital.

In any case the maximum someone can contribute to a pension in any one tax year is equal to their earned income in that year, or if they don’t have any relevant earnings, £2880, so it would take many years to place a sizeable inheritance into a SIPP.

Inheritance would count as income for this purpose.

You can contribute unused allowance from up to three previous years, so potentially a decent chunk of the inheritance if you needed to bring yourself under the threshold for receiving tax credits.

 

[sheothebudworths]

His tax credits would be fine - it's capital and they pay no attention to that (other than earned interest above a certain amount). You wouldn't WANT them considering it as income for TC's as you'd be doubly fucked if they did!

 

[strung out]

Yeah, it's also for Tax Credits, which is not the issue here (there are no restrictions for savings for TC's anyway) - the problem is with the housing benefit claim.

I missed that, but the same rules apply. See here: The Housing Benefit Regulations 2006

.—(1) A claimant shall be treated as possessing capital of which he has deprived himself for the purpose of securing entitlement to housing benefit or increasing the amount of that benefit except to the extent that that capital is reduced in accordance with regulation 50 (diminishing notional capital rule).

(2) Except in the case of—

(a)a discretionary trust; or

(b)a trust derived from a payment made in consequence of a personal injury; or

(c)any loan which would be obtained only if secured against capital disregarded under Schedule 6; or

(d)a personal pension scheme or retirement annuity contract; or

(e)any sum to which paragraph 45(a) and 46(a) of Schedule 6 (disregard of compensation for personal injuries which is administered by the Court) refers; or

(f)child tax credit; or

(g)working tax credit,

 

[sheothebudworths]

But I think that simply means an existing pension pot should be disregarded - that it doesn't follow that you can then use an inheritance to top it up... the inheritance being the first bit of capital to consider.

 

[sheothebudworths]

I did find this which is interesting (although no update as to whether the DWP/local council followed the judgment) - Deeds of Variation and Deprivation of Assets | Weightmans

Although someone up above said a Deed of Variation has to be made within two years anyway.

I actually appealed (and won) a decision made my housing benefit to include in what capital they decided I had, an investment bond, which had an element of life assurance, which my mum had named me on along with her.
A bond with an element of life insurance is disregarded and it took me months and months to finally find the evidence that life assurance amounted to the same thing, despite HB insisting it didn't.

The rules are not just ridiculous and explicitly unfair (if you happened to earn enough not to be dependent on any benefits, or even just to live in an area with more affordable housing, none of this would be anyones business - it sucks) but so complicated that even the people enforcing them don't fucking understand them.

(I got the decision reversed but not a word of apology or any word at all back when I asked for an assurance that in future staff be made fully aware of the rules/ensure they check them properly, given that many people would have taken their word for it and/or not had the means or the will to delve into it - and it took a TON of that - when it could have a huge and devastating financial impact on people)

 

[smmudge]

Inheritance would count as income for this purpose.

You can contribute unused allowance from up to three previous years, so potentially a decent chunk of the inheritance if you needed to bring yourself under the threshold for receiving tax credits.

Pretty sure inheritance doesn't count as income for pension allowance purposes. Only amounts from "relevant earnings" count, inheritance not being earned. In any case, person in question is self employed with low earnings, what's the chances they already have a pension pot?

 

[strung out]

But I think that simply means an existing pension pot should be disregarded - that it doesn't follow that you can then use an inheritance to top it up... the inheritance being the first bit of capital to consider.

I did a bit more reading up on it and think you may well be right, although it's still possible to put some into a pension, as that would be seen as a reasonable use of funds to plan for retirement.

Apparently, the test for deprivation is a subjective one, so dumping the whole inheritance into a pension would be seen as notional capital for housing benefit, but a smaller amount possibly not. It would be up to the authorities (and eventually a judge if necessary) to decide.

Sorry if I came across as a tad mansplainy

 

[strung out]

Pretty sure inheritance doesn't count as income for pension allowance purposes. Only amounts from "relevant earnings" count, inheritance not being earned. In any case, person in question is self employed with low earnings, what's the chances they already have a pension pot?

Personally, I think somebody with no pension provision starting a pension and putting inheritance into it would have a very good argument for that inheritance not being seen as deprivation of assets.

 

[smmudge]

Personally, I think somebody with no pension provision starting a pension and putting inheritance into it would have a very good argument for that inheritance not being seen as deprivation of assets.

Sure but if they earn £10k a year and starting a pension now that's relief at source, they're only going to be able to put £8k in it without getting a fucking huge tax bill on the rest.

 

[StoneRoad]

I have an acquaintance who is expecting a whopping Inheritance Tax bill, thanks to a less than spectacular solicitor who is/was dealing with the estate in question.