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Will Inheritance Affect My Benefits in the UK?

Written by, Marija Petkova

Updated September, 7, 2022

Rules about benefits and inheritance money can be confusing. 

If you’re wondering, “will inheritance affect my benefits in the UK?” the answer is it might, but it depends on the amount and the type of benefit you’re claiming. 

In this article, we’ll explain how inheritance and savings can affect different types of benefits and look at saving limits. 

Let’s dive in.

Receiving Inheritance While on Benefits in the UK

Receiving an inheritance while on benefits can affect the benefits because most of them are means-tested. That means once the income or savings exceed the threshold, the benefits might get reduced or cease. 

Means-tested benefits that can be affected by inheritance and savings include: 

  • Universal Credit
  • Employment and Support Allowance
  • Income Support
  • Housing Benefits
  • Council Tax Support
  • Pension Credit
  • Working Tax Credit
  • Child Tax Credit

You need to let the Department for Work and Pensions (DWP) know if your savings increase and when you receive an inheritance. If you don’t, you might be fined and face a possible prison sentence. You can also lose the right to receive benefits for up to 3 years and be asked to repay overpaid benefits.

What Counts as Savings? 

Savings are money that you can get hold of easily or financial products that can be sold. This includes:

  • Cash savings: These are savings that you have in your bank account, building society account, or any other type of account that pays interest.
  • Investments: A saving product that gives you a return on your money, such as stocks and shares ISA or unit trust.
  • Premium bonds: National Savings & Investments products that pay out prizes instead of interest.
  • Mortgage repayment: The amount of money you pay each month to reduce the amount of your mortgage loan, for example, if you have a flexible mortgage.
  • Rent payment: The amount of money you pay each month to live on someone else’s property.
  • Council tax payment: The amount of money you pay each year to help cover the costs of local government services.
  • Other regular bills: Utility bills, mobile phone contracts, car insurance.

The DWP decides if you can include your savings in your benefits claim.

What Are the Savings Limits?

Means-tested benefits have a lower capital limit of £6,000 and an upper limit of £16,000. This limit is known as the Savings Credit threshold.

Universal Credit

If you or your partner have less than £6,000 in savings or income, your claim for these benefits will not be affected. If you and/or your partner have saved £16,000 or more, you won’t be eligible for Universal Credit.

If you earn more than £6,000 or have more than that amount in savings, the DWP will not consider the entire sum as an income. 

For reference: You’ve notified the department that you’re claiming Universal Credit and have £7,000 in a savings account. The first £6,000 is disregarded.
The remaining £100 is used to calculate your monthly income.
£1,000 ÷ £250 = 44 × £4.35 = £17.40
Your monthly Universal Credit payment will be reduced by £17.40.

Housing Benefits

If you have reached the State Pension age, the £6,000 limit doesn’t apply unless you’re claiming housing benefits with someone who is under the State Pension age.

People over the State Pension limit can have up to £10,000 in savings before their housing benefits are affected. Every £500 over the limit counts as £1 of weekly income.

If you get Pension Credit, you can save up to £16,000 without compromising your claim. 

Tax Credits

Tax credits aren’t affected by savings limits. They are based on the amount of money you earned the previous year.

Pension Credit

Capital doesn’t affect Pension Credit unless you have more than £10,000 in assets.

In that case, for each £500 (or part of £500), you will be considered to have an income of £1 per week. This is added to any other forms of income you may have (such as a pension).

Inheriting a House While on Benefits in the UK

Inheriting property doesn’t necessarily have to affect your benefits, but you’ll almost certainly pay inheritance tax unless it falls under the 7-year rule.

Under certain circumstances, the property does not qualify as savings; this is referred to as “disregarded property.”

What Is Disregarded Property?

Any type of property you own counts as capital for benefits, the amount of which affects how much you can receive in benefits.

The only time this rule doesn’t apply is when the property is disregarded. 

If you do not live in your home and it is unoccupied for 6 months, then the government will not count your home as part of your assets. It’s also disregarded if:

  • You left because of an inconvenience
  • You decided to put it on the market
  • Purchased and intended to move in
  • Started legal proceedings to move in
  • You moved out so that necessary repairs could be made, and you intend to return

If you need to sell your home to buy a new one (and switch to a buy-to-let mortgage), have received money from an insurance company for the damage to your home, or have taken out a loan to renovate your home, the DWP will disregard the property for up to 6 months.

Other Savings That Can Affect Benefits

There are a few other types of savings that can affect your benefits in the UK. 

Redundancy Pay

If you’re eligible for redundancy pay, it’ll be included in your means-tested benefits tally. If you’ve been fired, the main benefit you can receive is a new type of Jobseeker’s Allowance; this is independent of your savings.

Compensation Payouts

Compensation payments are funds paid to you if you are hurt or become ill as a result of your job. The lump sum you will receive, if eligible, is determined by the seriousness of your injuries or illnesses.

Deprivation of Assets

You can’t reduce your assets or savings on purpose to increase your benefits. The DWP refers to this as “asset deprivation.”

Giving away money, transferring ownership of a property, and acquiring items that are not included in the means test (automobiles and jewellery) are all examples of asset deprivation.

Bottom Line

Will inheritance affect my benefits in the UK? The short answer is yes. 

When it comes to benefits and inheritance in the UK, the rule of thumb is that if you receive an inheritance that puts you over the £16,000 limit for capital assets, your benefits may be reduced or cease altogether. Still, there are a few exceptions to this rule that might save you your benefits. For example, one of the benefits of bankruptcy is that you don’t lose any benefits.

Frequently Asked Questions And Their Answers

What benefits are not affected by inheritance?

Benefits that are not affected by savings or inheritance include:

  • Attendance Allowance
  • Carer’s Allowance
  • Contributory Employment and Support Allowance
  • Disability Living Allowance
  • Contribution-based Style Jobseeker’s Allowance
  • Personal Independence Payment

Do I lose my benefits if I inherit money?

Regardless of what you inherit, whether it’s cash or property, such as an apartment or a house, it may affect your benefits, depending on the amount. If it’s likely to push you over the £16,000 savings limit, the DWP will reduce your benefits.

How to avoid inheritance affecting benefits?

Will inheritance affect my benefits in the UK? Most likely. But can you avoid it? Unfortunately, there’s no way around it. When you inherit money or assets, it becomes part of your taxable estate. This means that your inheritance will be taxed as if it were income and can thus affect your benefits.

My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.