Universal credit: Capital rules
The capital rules for Universal Credit follow those for most current means-tested benefits by allocating an income to the claimant based on the amount of capital held. Presently, capital itself is not taken into account for tax credits, only any actual interest (generally above £300) is calculated as income.
Savings (or ‘capital’) over a certain amount will be included when working out how much, if any Universal Credit is payable.
Universal Credit adopts the general capital rules that are established in other means-tested social security benefits. The maximum capital limit for claiming Universal Credit is £16,000 for either a single person or a couple where that capital is held jointly. If capital is above this amount there is no entitlement to UC.
Capital or joint capital over £6,000 is treated as providing income, known as “tariff income”, of £4.35 per month for each additional £250 (or part thereof). For example capital of £6,250 gives monthly tariff income of £4.35. Capital of £6,250.01 gives a monthly tariff income of £8.70.
The lower limit is £6000, so any capital below £6000 is disregarded.
The upper limit is £16000, so anyone with savings (capital) over £16,000 cannot get Universal Credit.
DWP have confirmed that money put aside for the purpose of paying a tax bill for a business will be disregarded if it is in a business bank account or you can provide evidence to show why it put aside. This is based on the rule that business assets can be disregarded as the claimant’s personal capital.
In addition, regulations introduced from May 21 2020, introduce a disregard for any payment made to a claimant carrying on a trade, profession or vocation:
- In relation to a furloughed employee under the job retention scheme; or
- By way of a grant or loan to meet the expenses or losses of the trade, profession or vocation in relation to the outbreak of coronavirus.
Such payments can be disregarded in the calculation of the claimant’s capital for a period of 12 month from the date on which it is received. DWP have confirmed the following statement to us ‘ Any payment made to a UC claimant carrying on a trade, profession or vocation way of a grant or loan to meet the expenses or losses of the trade, profession or vocation in relation to the outbreak of coronavirus disease will be disregarded for 12 months. This is a separate rule to the one that says business assets can be disregarded as the claimant’s personal capital.
Income from letting out property is not listed as income for Universal Credit, although the rules say that where the property is to be regarded as capital (in other words, it is not disregarded capital), any actual income from that capital – such as rent received – is treated as part of the claimant’s capital from the day it is due to be paid to them.
Where the property is not the claimant’s main residence, the property will be capital (unless it specifically falls to be disregarded – see ADM H2). There are rules which determine how the value of the capital should be determined, which includes reductions for the costs of sale and the value of encumbrances secured on the property – see ADM H1601-H1681.
If a property business is a limited company, then the person’s shares in the company will be their capital unless they are in a position analogous to a sole trader or partner in the property business when special rules apply. See our section on companies.
Many current tax credit claimants will be unfamiliar with this rule and the amount of their savings could lift them out of entitlement to Universal Credit. This is because tax credits do not take into account capital in the same way as means tested benefits. Instead of using a tariff income, tax credits only take into account actual interest received from capital (generally only if it is above £300).
For those tax credit claimants who move across to UC under the ‘managed migration’ exercise, transitional protection will apply. This means that any capital in excess of £16,000 will be disregarded for UC purposes for up to 12 assessment periods from the point they managed migrated over to UC. However, once capital falls below £16,000 in any assessment period, the transitional protection is lost.
This protection does not apply to tax credit claimants who start to claim UC outside of the managed migration exercise, for example where they have a change of circumstances that terminates their tax credits award, who choose to claim UC or need to claim another benefit that UC has replaced (which in most cases will lead to termination of their tax credit claim).
Not all capital is taken into account, some may be disregarded and sometimes claimants may be treated as having capital even if they do not physically have it (notional capital). Advisers can find the detailed rules about capital in the DWP ADM Chapters H1 (Capital) and H2 (Capital disregards).
Last reviewed/updated 26 February 2024