Assessing the Impact of Inheritance on Universal Credit Eligibility

Inheritance can significantly impact an individual's eligibility for Universal Credit, a means-tested benefit designed to support those on low income or out of work. The receipt of an inheritance can alter financial circumstances, potentially affecting the amount of Universal Credit one is entitled to receive. This article explores the nuances of how inheritance is treated under Universal Credit regulations and provides guidance on managing these changes effectively.

How Inheritance Affects Universal Credit

When an individual receives an inheritance, it is considered a change in their financial situation. Universal Credit is calculated based on income and savings, and any increase in these can lead to a reassessment of eligibility. The Department for Work and Pensions (DWP) requires claimants to report any changes in their circumstances, including receiving an inheritance, to ensure the correct amount of benefit is paid.

Capital Limits and Their Implications

Universal Credit has specific capital limits that determine eligibility. If a claimant's total capital, including savings and assets, exceeds £16,000, they are not eligible for Universal Credit. Capital between £6,000 and £16,000 is treated as providing a monthly income, which can reduce the amount of Universal Credit received. Therefore, an inheritance that increases a claimant's capital above these thresholds can significantly impact their benefit entitlement.

Example Scenario

Consider a claimant who receives an inheritance of £10,000. Prior to receiving this inheritance, their total capital was £3,000. With the inheritance, their total capital becomes £13,000. This amount falls between the £6,000 and £16,000 thresholds, meaning it will be treated as providing a monthly income, thereby reducing their Universal Credit payments. If the inheritance had been £20,000, their total capital would exceed £16,000, making them ineligible for Universal Credit altogether.

Strategies for Managing Inheritance

To mitigate the impact of inheritance on Universal Credit, claimants can consider several strategies. It is crucial to approach these strategies with caution and seek professional advice to ensure compliance with legal and regulatory requirements.

Utilising the Inheritance

One approach is to use the inheritance to pay off debts or invest in essential items that do not count towards capital, such as home improvements or necessary household goods. This can help reduce the capital amount and potentially maintain eligibility for Universal Credit.

Setting Up a Trust

Another option is to place the inheritance in a trust. Trusts can be complex and require careful planning, but they may offer a way to manage the inheritance without affecting Universal Credit eligibility. It is essential to consult with a legal expert to understand the implications and ensure the trust is set up correctly.

Reporting Changes to the DWP

It is imperative for claimants to report any changes in their financial circumstances to the DWP promptly. Failure to do so can result in overpayments, which the claimant will be required to repay, and may also lead to penalties or legal action. The DWP provides guidance on how to report changes, and claimants should ensure they follow these procedures accurately.

Conclusion

Inheritance can have a significant impact on Universal Credit eligibility, and it is essential for claimants to understand how their benefits may be affected. By being proactive and seeking professional advice, individuals can manage their inheritance in a way that aligns with their financial goals while maintaining compliance with Universal Credit regulations. Understanding the rules and reporting changes promptly are key steps in ensuring that claimants receive the correct amount of support.

This website is not affiliated with or endorsed by the UK Government. It is an independent resource created to provide information and guidance on Universal Credit. For official information, please visit GOV.UK.