Bag of cash

Lump In The Road

How does receiving inheritance, redundancy or other lump sums affect benefit payments? If we’re on UC, it could be treated as income, and we might lose out. Here’s the lowdown on lump sums and Universal Credit….

Now the dust has settled on the 2019 Election, one thing is clear: Universal Credit is here to stay. Of the many issues around the benefit, one thing not often talked about is how lump sums can affect our payments.

Jeff Mitchell, editor of Quids in! said: “More and more, we hear of people losing benefits because of a pay-out for insurance, an inheritance or becoming redundant. Sometimes people are getting a lump sum in back-payed benefits, if they’ve successfully appealed a sanction. This brings down their monthly income and usually they had no idea this would be considered as income.”

So, how do lump sum pay-outs affect our Universal Credit?

The rule is that any savings we have up to £6,000 is ignored. So, if we had nothing and then were to receive an inheritance or insurance payment of up to £6,000, it doesn’t impact our Universal Credit. But once we go over that savings threshold, (including any we had stashed away already), the money starts to be treated as income. (Read the Quids in! Universal Credit pages for more information on all things UC.)

How much income are savings over £6,000 treated as?

Every £250 over £6,000 is treated as £4.35 in income. If we are already working, this may well tip us over the income threshold and our Universal Credit will be reduced.

If I receive a bigger lump sum, will I lose all of my Universal Credit?

Potentially, yes. All savings over £6,000 are counted as income until we reach £16,000 in savings. At this point, we no longer qualify for Universal Credit. This is because we cannot claim Universal Credit if we have savings over £16,000.

Will I have to re-apply for Universal Credit if I lose it?

Maybe, maybe not. If we’re working and claiming Universal Credit we will stop receiving it during the months our savings exceed £16,000. If we receive a lump sum that takes us over the threshold for just one month, then we should receive Universal Credit the next month. This is as long as we are back below the threshold. It’s a good idea to regularly use a benefit checker, such as Turn2Us.

Does this affect a redundancy payment too?

Yes, all lump sums – including redundancy, back-dated benefit payments, insurance and inheritance. Anything that takes us over £6,000 is treated as income, and anything that takes us over £16,000 makes us ineligible.

Read the Money Advice Service’s guidance on lump sums and Universal Credit here.

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