DWP underpayments - sudden lump sum

[Morello]

Hello all

My elderly mother in law has suddenly received a state pension lump sum of 24k from DWP following underpayments she didn't know about. This has been accompanied by letters from her local authority saying that due to a change in her circumstances she is now liable for council tax and housing benefit, having previously been eligible. The new lump sum means she no longer meets the criteria because it will take her over the 16k savings threshold.

She didn't know she was being underpaid; the money will disappear on rent and CT, after which she will probably have to reapply. Another family member has suggested she could 'gift' some to her kids to stay under the threshold but I'm worried about the legality of that.

DAK where she stands? Should DWP have given her a choice as to how to receive the sum so she could stay below the threshold, a gradual repayment of some kind?

Many thanks. M

[genou]

If she gives the money away, that is "deprivation of assets" and the council can treat her as if she still has the cash.

If the lump sum gives rise to tax there is a concession:

Pensions paid in arrears
If a pension provider discovers a long-standing underpayment of pension, the underpayment is calculated and paid in a single sum. Where the provider is required to operate PAYE, they operate it on the lump sum arising which may give rise to higher rate liability for a pensioner who is usually a basic rate taxpayer. In this situation, the pensioner should contact HMRC at the end of the tax year in which the arrears were paid and supply a schedule showing the years to which underpayments are attributable (on the accrual basis), asking for the payments to be related back to the relevant years. HMRC will spread the payments back over the relevant years and recalculate liability. Underpayments in the earlier years may be set-off against the resulting overpayment in the year of the lump sum payment.

( That's from https://www.gov.uk/hmrc-internal-manual ... l/eim75020 )

[Lootman]

Another family member has suggested she could 'gift' some to her kids to stay under the threshold but I'm worried about the legality of that.

If she gives the money away, that is "deprivation of assets" and the council can treat her as if she still has the cash.

As I recall that provision is actually "deliberate deprivation of assets", and is usually cited in respect of intentionally giving away assets when expecting to move to a care home and then trying to get the local authority to pay for it.

I am less sure it applies in a case where the disbursements are regular and natural expenses, especially since it appears that the lady had no knowledge of this situation and the change to it. Or if say she has to repair her roof or buy a new car, again that should be fine if genuine.

So I think it depends how it is done.

It might have changed in 30-odd years but I recall my mother being careful to keep her net worth below a certain level so as not to have to pay council tax over a certain age.

[Morello]

Thank you for the replies.

Genou- I can’t see how to reply to you specifically. Question: as the lump sum is being paid at the beginning of the new tax year then does she become liable for housing benefit and CT for a whole year before she can bring this up with HMRC??

[genou]

Thank you for the replies.

Genou- I can’t see how to reply to you specifically. Question: as the lump sum is being paid at the beginning of the new tax year then does she become liable for housing benefit and CT for a whole year before she can bring this up with HMRC??

I confess my ignorance. I don't believe that housing benefit / CT will, unprompted, care about the tax effect - they will likely just look at bank balances. I reckon your best port of call is Citizens Advice. They tend to be the most clued up about benefits in my limited experience.

I didn't think to say, but since it is a DWP payment, they will pay it gross, so you need to be on the ball as to whether there will be a tax bill or not ( after the arrears are smeared over the years in which they arose ). If there is a bill, she'll need the money to pay it.

Possibly there's an argument with the benefits/CT people that she doesn't have all the money if some of it will go in tax - which might involve paying any tax early so that she really does not have it.

In theory HMRC will work out the tax effect for her once the DWP give you the schedule of how the arrears relate to past tax years. But I wouldn't hold my breath for that. Have DWP volunteered an analysis?

[Morello]

No they haven’t - is that something she can request?

[genou]

No they haven’t - is that something she can request?

I know that a private pension would provide it pretty much by return. DWP? No idea, but they must already have the numbers or they wouldn't know what to pay. You will have a better idea than me her potential for the lump sum to make tax payments likely, and therefore whether poking DWP is worthwhile.

[Morello]

It’s not so much about tax liability - the housing benefit and CT is the main/immediate concern. I realise I wasn’t 100% clear about that.

[genou]

It’s not so much about tax liability - the housing benefit and CT is the main/immediate concern. I realise I wasn’t 100% clear about that.

In that case, I can only repeat - go talk to Citizens Advice.

[Morello]

Will do. Thank you.

[didds]

If she gives the money away, that is "deprivation of assets" and the council can treat her as if she still has the cash.

If the lump sum gives rise to tax there is a concession:

...
( That's from https://www.gov.uk/hmrc-internal-manual ... l/eim75020 )

[Snipped for brevity]

Yes - but thats for tax. the OP's question was DWP benefits related.

I concur with CAB. Age UK may also be able to help.

[Grumpsimus]

I used to volunteer at the CAB and can assure the OP that giving away part of the lump sum, in order to claim Council Tax and Housing Benefit, will be regarded as 'deliberate deprivation of assets' by the DWP and local councils. They are usually very aware of this. It should also be noted that falsely claiming benefits is a criminal offence. When you claim benefits you have to give details of any savings and agree to notify the authority of any relevant changes.

I had a very similar case when I was at CAB. A woman won over £30,000 at Bingo. She thought she would be clever and distribute the bulk of the money to her children, in order to continue to claim benefits. The DWP became aware of this and investigated and stopped the benefits she was no longer entitled to receive. Because it was a criminal matter the DWP obtained copies of her bank statements, clearly showing the receipt of the money and the distribution to the children. The women continued to deny she had received the money and had sent it to her children, despite the very clear evidence that this was exactly what she had done. The last that I heard was that the DWP were preparing to prosecute her.

[Adamski]

Hi there, there is a way... this is what people do, although morally questionable... You can reduce the bank balance gradually. If shes happy to do so use her card for grocery shopping, cash withdrawals and the like. In effect gifting via day to day spending.

There's no way the dwp can prove where the spending has gone. Then reapply for PC and housing benefit.

BTW for pension credit savings limit is £10k, for housing benefit the upper savings limit is £16k but lower limit for savings only £6k. So to get full benefits you need to keep the bank account balance under £6k not £16k.

Not my situation but know of a relative moving about pots of money like cup and ball. I don't interfer but that's reality of what some retired ppl do.

[kempiejon]

I was in the Job Centre Plus today and one of the advisors was having a conversation with an applicant. I heard them say the claimant should go to CAB to get help with housing and universal credit claims as the JC was for the employment benefits. They said that the department (I assume of W&P) had a contract with the CAB to help with applicants and the form filling for relevant benefits. So it looks like they are a helpful place to check.

But looking at the OP, the aged P's benefits are means tested and now they have means. Looks like that's the end of those benefits until the threshold to passed again.
Seems like most of the benefit claimants round here are on contributions based help so don't have the inconvenience of being means tested.

[Lootman]

Hi there, there is a way... this is what people do, although morally questionable... You can reduce the bank balance gradually. If shes happy to do so use her card for grocery shopping, cash withdrawals and the like. In effect gifting via day to day spending.

There's no way the dwp can prove where the spending has gone. Then reapply for PC and housing benefit.

BTW for pension credit savings limit is £10k, for housing benefit the upper savings limit is £16k but lower limit for savings only £6k. So to get full benefits you need to keep the bank account balance under £6k not £16k.

Not my situation but know of a relative moving about pots of money like cup and ball. I don't interfer but that's reality of what some retired ppl do.

Yes, you obviously cannot just park the money with friends or family to retain entitlement to benefits.

But you are allowed to spend that money as long as the drawdown is reasonable. So for example someone can spend some of a windfall on repairs or maintenance on a house or car that had been deferred due to lack of funds. A holiday is fair if they had not taken one in some time. Pre-pay any tax that will be due on the windfall. Pre-pay bills. And so on.

The key is surely to gradually run down any excess balances over time, spending on reasonably necessary and non-extravagant items. You should not be scared to spend money for fear of "deprivation" allegations.