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I am looking into income implications on an endowment policy

Customer Question
I have maturing next year...
I am looking into income implications on an endowment policy I have maturing next year
Submitted: 2 years ago.Category: UK Tax
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Customer reply replied 2 years ago
I want to know if, when my endowment matures, it is considered 'income' by the tax credits system? I currently receive child tax credit and working tax credit. Will these be affected by the payout of my endowment policy?
Customer reply replied 2 years ago
If when the policy matures, I invested it in a pension which was my intention will this be considered 'deprivation of assets' by Universal Credit?
Answered in 2 hours by:
7/18/2015
UK Tax Professional: Sam, Accountant replied 2 years ago
Sam
Sam, Accountant
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Hi
Thanks for your question
The payout itself will not be considered income, for benefits and tax purposes, but if more than £16000 of savings are generated then will affect benefits such as housing benefit and Employment and support allowance (if income based) and Job seekers allowance
But for tax credits then they are only interested some any income this earns (say interest if it was invested in a bank or building society) so will take issue with your placing this into a pension scheme as this will be deprivation of capital. So you either then need to cease a claim for tax credits - so you can pay this into a pension pot OR not pay it into the pension pot, declare it and let HMRC assess what amount of your tax credit entitlement (based on projected interest to be paid) is affected.
Let me know if I can be of any further assistance
Thanks
Sam
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Customer reply replied 2 years ago
But if the endowment is immediately invested in a pension and so generates no income it won't affect my current tax credits? I only receive child tax credit and working tax credit which are not means tested. I don't receive any other benefits.If I was to invest this amount immediately it matures would that be ok?
UK Tax Professional: Sam, Accountant replied 2 years ago
Hi
I am afraid that is irrelevant - id some/all of the money was sued to clear debts - or make a necessary purchase - then there would be no issue at all, but you are using this to top up a pension position - which is not deemed to be a debt or a necessity.
And it would have generated income had you held onto it, and as a pension top up does not fit the remit if necessity or debt - then by making this pension top up, will affect your entitlement to tax credits - so you either have to NOT claim the tax credits - because then its just your business what you do with the money - or carry on claiming tax credit and then lose them if you proceed with this top up as it will be seen as a deprivation of capital OR hang onto it and declare the income that arises from it (the interest) which will have a smaller affect of your tax credit (they treat every £500 of capital as generating £1 of income for tax credits)
Tax credits are means tested - its due to your low income that you have an entitlement at all.
Thanks
Sam
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