Universal Credit - 7 Tips for New Claimants

December 2020
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With the Office for Budget Responsibility predicting a rise in unemployment in the second half of next year to 7.5% of the working population, many may be forced to seek Universal Credit for the first time. 

Universal Credit is based on household income and circumstances and is designed to replace several other working age benefits. Payments differ depending on the age of the applicants and whether the claimant is single or a couple.

Standard Monthly Allowance

  Under 25 Over 25
Single £342.72 £409.89
Couple £488.59 £595.04

Additional elements are payable for those with dependent children and carers who are providing 35 hours or more of care for a disabled person and housing costs. 

Those who have savings may see their entitlement to Universal Credit reduced. Savings under £6,000 are disregarded but between this and £16,000, each £250 of savings reduces the credit by £4.35 per month. 

Here are some points claimants may wish to take note of to protect their eligibility for benefits.    

  • Ring fence any money owed for their 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 31st. Money set aside for tax is not counted as savings for the Universal Credit means test, so will not reduce entitlement to benefits.  
     
  • Money in pension pots is not counted for the Universal Credit means test unless the claimant is over age 66, but if money is withdrawn it will count towards the means test.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 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. 
     
  • 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 If these are drawn out, they will lose the 25% bonus added to the LISA by the Government on the amount withdrawn, so if possible, look to other savings first.  
     
  • Universal Credit claimants are eligible to start a Help to Save account which can be maintained for up to 4 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% 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 4 years, with a bonus of 50% of the highest balance paid after year 2 and year 4. Access to these savings is permitted without losing the bonus.  
     
  • Parents who claim Universal Credit can continue to receive Childcare Vouchers but are ineligible for a Tax -Free Childcare Account but can receive help with up to 85% of childcare costs as a UC claimant.
     
  • It is possible to work while claiming Universal Credit but each £1 earned will reduce the credit paid by 63p. Those with childcare responsibilities or disabilities may earn up to certain amounts without a deduction from credit.  Each £1 of unearned income will reduce the credit by £1 and this includes income from pensions.  Some income is disregarded from the calculation, including child benefit, income from a lodger under the rent a room scheme, child maintenance payments and disability benefits including Employment Support Allowance and Disability Living Allowance. 

For more information on Universal Credit  a useful guide has been published by the Money and Pensions Service. https://www.moneyadviceservice.org.uk/en/articles/universal-credit-an-introduction

The information contained within this article has been compiled on LEBC’s understanding of current DWP allowances 2020/21. The Financial Conduct Authority does not regulate state benefits.

Kay Ingram                                            
Public Policy Director                                        
December 2020  

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. All information is based on our current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.            

 

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