Will An Inheritance Affect My Tax Credits Claim?

If you are thinking about whether or not an inheritance can affect your claim for Tax Credits, you should read the following blog post to get an answer to your question. Additionally, we will explore situations that may or may not affect your Tax Credits claim when you receive an inheritance.

Will An Inheritance Affect My Tax Credits Claim?

Yes, an inheritance will affect your claim for Tax Credits. Here are some ways in which an inheritance can affect your Tax Credits claim:

• Impact on Income: If you receive an inheritance, it may increase your income, which can affect the amount of Tax Credits you receive. This is because Tax Credits are means-tested, which means that they are calculated based on your income and other financial circumstances.
• Eligibility for Tax Credits: Depending on the amount of the inheritance, you may become ineligible for either Working Tax Credits or Child Tax Credits; or both.
• Effect on Savings: Inheritance can also affect your savings, which can impact your eligibility for Tax Credits. If you inherit a significant amount of money, this may be considered savings and could affect your entitlement.

Do I Have To Declare My Inheritance To The DWP?

Yes, you must declare your inheritance to the DWP if you don’t want to be convicted of benefit fraud by withholding information deliberately. Not only that, there is a time limit for reporting any changes in your financial circumstances, including an inheritance. 

You must report any changes to HM Revenue & Customs (HMRC) within one month of becoming aware of the change. Failing to report this on time can lead to overpayment or underpayment of Tax Credits. You can do this by reporting a change in circumstances to Jobcentre Plus.

Another factor that you must keep in mind in such a case is the matter of Inheritance Tax. Inheritance Tax is not directly related to Tax Credits, but it is important to consider if you receive an inheritance. 

Therefore, if you inherit a large estate, you may have to pay Inheritance Tax as well. It is quite clear that an inheritance can further impact your financial circumstances and your entitlement to Tax Credits.

When Does An Inheritance Not Affect Your Tax Credits Claim?

There are certain unique circumstances under which your inheritance may not affect your Tax Credits claim. These include (but are not limited to) the following:

• Inheritance of certain assets such as personal items, cars, and life insurance policies may not affect your Tax Credits claim as they are not considered as income or savings.
• If you inherit a small amount of money, it may not affect your Tax Credits claim. Inheritance of up to £6,000 in a tax year does not need to be reported to HM Revenue & Customs (HMRC) and may not impact your entitlement to Tax Credits.
• Inheritance of a property that you live in as your main residence may not have an impact on your Tax Credits claim. The property will not be considered as income or savings and will not affect your eligibility for Tax Credits.

Conclusion:

The above discussion helps to conclude that an inheritance will surely bear an impact on your Tax Credits claim; especially if it is a substantial amount and can increase your income or savings such that you can no longer qualify for benefits.

References:

Inheritance and benefits | Disability charity Scope UK

What Happens if You Inherit Money While on Benefits in the UK?