Kay Ingram: Those who have savings may see their entitlement to universal credit reducedKay Ingram is director of public policy at
Kay Ingram: Those who have savings may see their entitlement to universal credit reduced
Kay Ingram is director of public policy at national financial planning group LEBC.
A rise in unemployment to 7.5 per cent of the working population by the second half of next year is forecast by the Office for Budget Responsibility.
That means many people may be forced to seek universal credit for the first time.
Those who have savings may see their entitlement to the benefit reduced; savings under £6,000 are disregarded, but between this boundary and £16,000, each £250 of savings reduces the credit by £4.35 per month.
However, those with savings may still be eligible to claim, and there are some important steps you can take to protect your funds.
1. Cover your tax bill separately
Ring fence any money owed for your 2018-19 tax bill. Tax due via self-assessment, used by the self-employed and those with additional tax to pay, is usually paid in two instalments in July and January of the following tax year.
This year taxpayers could defer making the July payment until January 31. Money set aside for tax is not counted as savings for the universal credit means test, so will not reduce entitlement to benefits.
While it would be ideal to hold money due for tax in a separate account, it is not strictly necessary so long as the self- assessment return has been filed and the amount owing agreed with HMRC.
Filing the tax return by early December means an individual can enter a ‘time to pay’ agreement if they need to, allowing them to delay payment beyond 31 January and spread tax in affordable instalments.
Doing this avoids the usual flat rate penalty of £100 but it will incur interest at 2.6 per cent.
2. Don’t draw on your pension pots
This is not counted for the universal credit means test, unless the claimant is over age 66, but if money is withdrawn it will count towards the means test.
The pitfalls of tapping your pension too soon are explained here.
Pressed for cash: Many people may be forced to seek universal credit for the first time after losing their jobs due to the Covid-19 crisis
3. Ring fence the money in your business
The self-employed should ensure that any money belonging to their business is ring fenced, and ideally held in a separate account, or it too will be counted towards the means test for universal credit.
4. Avoid ditching your lifetime Isa
Younger people saving for a house purchase deposit through a lifetime Isa will see their savings count towards the means test for universal credit.
If these are drawn out, they will still count towards it unless they are already spent, but you will lose the 25 per cent bonus added to the lifetime Isa by the Government on the amount withdrawn, so if possible, other savings should be spent first.
How does universal credit work?
5. Get a Help to Save account
Universal credit claimants are eligible to start a Help to Save account, which can be maintained for up to four years after their universal credit claim ceases.
So, those able to get back into work may be able to rebuild their savings and the Help to Save scheme includes a 50 per cent Government subsidy.
Eligible claimants with household income of £604.56 per month or more may open an account. Maximum savings are £50 per month over four years, with a bonus of 50 per cent of the highest balance paid after year two and year four.
Access to these savings is permitted without losing the bonus.
6. Seek help with childcare costs
Parents who claim universal credit can continue to receive childcare vouchers but are ineligible for a tax-free childcare account – but they can receive help with up to 85 per cent of childcare costs as a universal credit claimant.