Receiving Inheritance While On Benefits

Understanding Inheritance and Benefits

When an individual has benefits and receives an inheritance, the funds can impact their entitlement to certain state supports. The state considers inheritance as capital, which could affect means-tested benefits such as monthly Universal Credit payment, Income-based Jobseeker’s Allowance, Pension Credit, and Council Tax Support.

Means-Tested Benefits Thresholds:

• Below £6,000: Normally, your benefits are not affected.
• £6,000 – £16,000: You may lose some benefit, with a gradual reduction as your capital increases.
• Above £16,000: You are typically ineligible for benefits.

It’s pivotal for beneficiaries to declare their inheritance to the relevant departments, as failure to do so could constitute benefit fraud, leading to penalties or prosecution.

Inheritance can encompass various assets from an estate, including money, property, and possessions of value. Council Tax Reduction might be adjusted if an individual’s capital surpasses the lower limit. Similarly, those on Pension Credit need to stay vigilant about their increased wealth, as it may necessitate recalculations of their benefits.

They should consider the implications of their new financial standing on their benefits and seek professional advice to navigate the changes effectively. Each person’s circumstances are unique, and rules may vary; however, proper declaration and understanding of the impact are crucial in maintaining compliance and financial stability after receiving an inheritance.

Eligibility for Benefits with an Inheritance

When someone receives an inheritance, it may affect their eligibility for certain benefits, particularly those which are means-tested. Understanding how the additional funds influence the assessment of economic need is crucial for maintaining benefit entitlements.

Impact of Inheritance on Means-Tested Benefits

Means-tested benefits, like Universal Credit, Income Support, and Housing Benefit, are designed to support individuals who fall below a specific income or capital threshold. An inheritance can affect these benefits if it elevates a recipient’s financial resources above these thresholds. For example, every £250 over £6,000 in savings, is treated as having an incremental monthly income, which may reduce the amount of benefits one is entitled to receive.

Savings Limits and Capital Rules

The rules around savings limits and capital can determine a person’s eligibility for benefits after receiving an inheritance. Should an individual’s savings fall between £6,000 and £16,000, a tapering effect normally takes place where benefits are reduced progressively. Above £16,000 in savings limit and capital, a person is typically not eligible for means-tested benefits. This is because they are presumed to have adequate resources to support themselves without additional aid from the state.

How to Report an Inheritance

When an individual receives an inheritance, it is crucial to report the change in circumstances to the Department for Work and Pensions (DWP), as failing to do so could lead to legal consequences, including a possible prison sentence for fraud.

Notification Responsibilities

Upon receiving an inheritance, the beneficiary must declare the change in financial status to the Department for Work and Pensions (DWP). One should report both the amount and the date when the inheritance was received. It is advisable to report these changes in writing to have a record of the communications with the DWP. If the beneficiary is in receipt of benefits, there are strict reporting timelines that must be adhered to, usually within a month of receiving the inheritance to avoid penalties or overpayment claims.

1. Contact DWP: Reach out to the appropriate benefits office or use the contact information provided in benefit documentation.
2. Provide Necessary Details: Include all relevant information regarding the inheritance, such as:
   • The total amount inherited
   • The date the money or assets were received
   • Documents from probate proceedings if available
3. Update Your Benefits Claim: Adjust your benefits claim accordingly to reflect the new financial circumstances.

Deprivation of Assets and Legal Consequences

If a person purposefully deprives themselves of assets to maintain eligibility for means-tested benefits, it may lead to accusations of deprivation of assets. Transferring an inheritance to someone else or putting the funds into a trust with the intention to avoid affecting benefits can be viewed by the DWP as an act of deprivation. This could result in either a reduction or cessation of benefits and potential legal ramifications.

• Legal Outcomes: The beneficiaries could face a range of outcomes from reimbursement demands to benefit adjustments or even criminal charges depending on the severity of the deception.
• Resolving Issues: Beneficiaries are advised to seek legal advice if they are unsure of how an inheritance might affect their benefits to avoid the risk of committing fraud.

The inheritance must be managed in line with the terms of probate and the guidelines set out by the DWP. Failure to report correctly and intentionally attempting to deceive the benefits system can result in severe penalties, including repayment of overpaid benefits or a prison sentence. It is always safer to declare and provide full transparency than to risk the consequences of non-disclosure.

Managing Inheritance While on Benefits

When an individual on benefits receives inheritance, it’s important to understand how a lump sum can impact their financial assistance and how to effectively manage income generated from inheritance investments to maintain benefit eligibility.

Integrating Lump Sum Inheritances

Upon receiving a lump sum inheritance, it’s essential to assess how it could affect means-tested benefits, as most are sensitive to changes in an individual’s savings. Beneficiaries should promptly inform the relevant benefits office of their new financial circumstances to avert penalties or overpayments which may later need to be repaid. It may be possible to renounce the inheritance through a Deed of Variation if the beneficiary wishes to avoid impact on their benefits, however it is recommended to seek professional legal advice to ensure legal compliance.

Income from Inheritance Investments

Investing an inheritance into stocks, bonds, or shares could potentially generate additional income. This added income can influence benefit entitlements as well. One must carefully consider the type of investments and anticipate the level of income they would procure. For instance, investing in stocks might offer dividends, while bonds could provide periodic interest payments.

The key is to remain within the limits that would not affect the benefits, being mindful that even small increases in income could warrant a reassessment of benefit entitlements. It’s wise to seek financial advice to optimise investment strategies without endangering benefit eligibility. Organisations like Scope UK are helpful resources for understanding how inheritance and income from investments interact with disability benefits and allowances.

Housing Considerations for Beneficiaries

When an individual inherits property, it can have significant implications on their housing benefits and ability to manage housing costs. These considerations need to be taken into account for beneficiaries to maintain stability, claim housing benefits and comply with benefit regulations.

Inheritance Affect on Housing Benefit and Support

Inheriting property may lead to a reassessment of one’s housing benefits and council tax support eligibility. If an individual receives housing benefits, the acquisition of a property could be perceived as a change in capital which might exceed the £16,000 threshold. At this point, the individual may no longer qualify for full housing benefit.

For those receiving council tax support, the inheritance could also impact the amount of support they receive, as local authorities take capital and changes in circumstances into account when calculating eligibility.

Mortgage and Rent Payments

Upon inheriting a property, it’s worth considering the status of mortgage repayment obligations. A clear understanding is necessary regarding whether the property inherited is outright owned or has an outstanding mortgage. If mortgage repayments are due, beneficiaries must ensure these commitments are met to avoid mortgage loan defaulting.

Similarly, for beneficiaries currently in rented accommodation who inherit property, decisions must be made concerning rent payment commitments. This might involve deciding whether to move into the inherited property or potentially renting it out to cover their existing rent and living costs.

Managing inheritance effectively requires a good grasp of housing benefit regulations alongside practical financial considerations, ensuring beneficiaries make informed decisions.

Inheritance and Impact on Tax Credits

When an individual receives an inheritance, it can influence the amounts they receive from certain tax credits, particularly if these credits are means-tested. The inheritance may lead to adjustments in Child Tax Credit and Working Tax Credit, and it could also affect the amount they need to pay for Council Tax.

Child Tax Credit and Working Tax Credit Adjustments

Inheritances can affect Child Tax Credit and Working Tax Credit as these are based on household income. So should your inheritance result in increased incomes, for example from interest, dividends or rent then your entitlement to these credits may diminish.

Key Adjustments:

• Child Tax Credit: The amount of Child Tax Credit received could be impacted if the inheritance pushes the household income above £18,725 (the threshold for the 2023/2024 tax year). Beyond this, the award decreases by 41p for every extra pound of income.
• Working Tax Credit: Similar rules apply to Working Tax Credit, where an increase in annual income affects the entitlement on a sliding scale.

Council Tax Payment Changes

Receiving an inheritance may also influence Council Tax payments because Council Tax reduction is often means-tested. If the inheritance increases a claimant’s savings above a certain threshold, they may find their entitlement to Council Tax support reduced or even eliminated.

Key Points on Payments:

• Savings under £6,000: Typically do not affect Council Tax Support.
• Savings over £16,000: Except in the case of receiving Guarantee Credit, may disqualify you from receiving any Council Tax Support.

It is essential for individuals who receive an inheritance and are claiming tax credits to report these changes to the relevant authorities to ensure they are receiving the correct entitlements and to avoid potential overpayments.

Inheritance and Family Dynamics

When an individual receives an inheritance, it can significantly alter the financial landscape for both them and their family members. Careful consideration is required to understand the implications on the recipients’ benefits and how the inheritance might be shared amongst other beneficiaries.

Effect on Partner’s Benefits

The receipt of an inheritance can impact the benefits that a recipient’s partner receives. For instance, if a partner is claiming means-tested benefits, such as Housing Benefit or Council Tax Support, an increase in savings due to an inheritance may lead to a reduction or cessation of these benefits. It is imperative that couples assess their combined savings and understand the thresholds that could affect their entitlements.

Sharing Inheritance with Other Beneficiaries

When multiple beneficiaries exist, as outlined in a will, the distribution of an inheritance must reflect the deceased’s wishes. In scenarios where no clear will has been made, it falls to the rules of intestacy to determine how an inheritance is divided. This can lead to complex family dynamics, especially if disagreements arise about the sharing of assets. Transparency and adherence to legal guidelines are paramount in these situations to uphold the integrity of the inheritance process and to honour the intentions of the deceased.

Inheritance and Disability Benefits

When an individual receiving disability benefits in the UK inherits money or property, it can have implications for their benefit entitlements. Primarily, means-tested benefits may be more affected by inheritance, due to the increase in personal savings or assets.

Personal Independence Payment and Disability Living Allowance

Personal Independence Payment (PIP) and Disability Living Allowance (DLA) are not means-tested benefits. Hence, receiving an inheritance does not directly impact the eligibility for these payments. They are designed to help with some of the extra costs caused by long-term ill-health or a disability.

• PIP is available to individuals aged 16 to State Pension age.
• DLA is applicable to children under 16, serving as a precursor to PIP for adults.

It is crucial for beneficiaries to be aware that while PIP and DLA are preserved upon receiving an inheritance, holding the inherited assets may indirectly affect any means-tested benefits they currently receive or could apply for in the future. Means-tested benefits, such as Universal Credit or Housing Benefit, assess a person’s income and savings, and additional financial resources from an inheritance may tip the scales, leading to a reduction or loss of these benefits.

Further Information and Support

In the UK, understanding the nuances of receiving an inheritance while on benefits is crucial, specifically how it could affect one’s financial situation.

Individuals in receipt of benefits should immediately seek guidance once they receive an inheritance, since it may constitute a change of circumstances that could impact their benefit entitlements. It’s advisable to gather all necessary evidence related to the inheritance and consult with experts or support organisations that are well-versed in such matters.

• Disability Charity Scope UK offers comprehensive advice on how different benefits such as Universal Credit and Pension Credit can be influenced by an inheritance. They underscore the importance of notifying the relevant benefits office about any increase in savings.
• Citizens Advice is also a useful resource for information on how changes in circumstance can affect your income support
• Here at Harries Watkins Jones – Wills & Probate we can help guide you through the process. Get in touch today.

 

You can email Harries Watkins Jones to make an appointment at info@willsandprobate.wales or call us on 01656 335145 to get the ball rolling today.