Assessing the Impact of Inheritance on Universal Credit Entitlements

Inheritance can significantly impact an individual's entitlement to Universal Credit, a means-tested benefit designed to support those on low income or out of work. The receipt of an inheritance can alter the financial landscape of a claimant, potentially affecting their eligibility and the amount of support they receive. It is crucial for claimants to understand how inheritance is treated under Universal Credit regulations to make informed decisions and manage their finances effectively.

How Inheritance Affects Universal Credit

Universal Credit is calculated based on a claimant's income and capital. When an individual receives an inheritance, it is considered as part of their capital. The Department for Work and Pensions (DWP) assesses this capital to determine its impact on the claimant's entitlement. The rules governing capital and savings are pivotal in understanding how inheritance affects Universal Credit.

Capital Limits and Their Implications

Under Universal Credit rules, there are specific capital limits that influence entitlement:

• Capital below £6,000: This amount is disregarded, and it does not affect the Universal Credit entitlement.
• Capital between £6,000 and £16,000: For every £250 (or part thereof) over £6,000, the DWP assumes a 'tariff income' of £4.35 per month, which is deducted from the Universal Credit payment.
• Capital over £16,000: Claimants with capital exceeding this threshold are not eligible for Universal Credit.

Examples of Inheritance Impact

Consider a claimant who receives an inheritance of £10,000. The first £6,000 is disregarded, leaving £4,000 to be considered as capital. The DWP would calculate a tariff income of £4.35 for every £250 over the £6,000 threshold, resulting in a monthly deduction from their Universal Credit.

In another scenario, if a claimant inherits £20,000, they would exceed the £16,000 capital limit, rendering them ineligible for Universal Credit until their capital falls below this threshold.

Strategies for Managing Inheritance

Claimants can adopt several strategies to manage their inheritance effectively while maintaining their Universal Credit entitlement:

Spending on Essential Needs

Claimants may choose to spend their inheritance on essential needs such as housing repairs, debt repayment, or necessary household items. This can help reduce their capital below the £16,000 threshold, potentially restoring their eligibility for Universal Credit.

Investing in Personal Development

Using inheritance to invest in education or training can be a strategic move. This not only reduces capital but also enhances future employment prospects, potentially leading to financial independence and reduced reliance on benefits.

Seeking Financial Advice

Professional financial advice can be invaluable in managing an inheritance. Advisors can provide tailored strategies to optimise the use of funds while considering the impact on Universal Credit and other benefits.

Reporting Inheritance to the DWP

It is imperative for claimants to report any changes in their financial circumstances, including receiving an inheritance, to the DWP promptly. Failure to do so can result in overpayments, which the claimant would be required to repay, and may also lead to penalties or legal action.

Conclusion

Inheritance can have a profound impact on Universal Credit entitlements. Understanding the rules and limits regarding capital is essential for claimants to navigate their financial situation effectively. By adopting strategic approaches to manage their inheritance, claimants can ensure they remain compliant with regulations while optimising their financial well-being.

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.