How do savings and lump sum payouts affect benefits?

The main means-tested benefits that are affected by both income and savings include:

• Universal Credit
• Pension Credit
• Tax Credits (Child Tax Credit and Working Tax Credit)
• Council Tax Support
• income-based Jobseeker’s Allowance
• income-related Employment and Support Allowance
• Income Support
• Housing Benefit.

Savings are counted as any money you can get hold of relatively easily, or financial products that can be sold on. If you live as a couple any money they have in savings or capital is counted as well.

These include:

• cash and money in bank or building society accounts, including current accounts that don’t pay interest
• National Savings & Investments savings accounts, and Premium Bonds
• stocks and shares
• inheritance
• your pension pot if you’re currently taking your pension 
• property, which isn’t your main home.

Under certain circumstances, other properties you own but don’t live in might be disregarded.  

If you’ve recently received money or property and aren’t sure whether it counts as savings, you can report a change in circumstances and ask the DWP. 

If you’re writing your will and don’t want the inheritance you leave somebody to affect their benefits, it could be worth seeking professional advice. They might suggest you set up a trust, especially if the person you’re leaving money or assets to is vulnerable. For more information read our guide about using a trust to cut inheritance tax. 

Other savings and capital are normally disregarded, including: 

• personal possessions, such as jewellery, furniture or a car 
• your pension pot if you haven’t started withdrawing from it yet 
• value of any pre-paid funeral plans
• life insurance policies that haven't been cashed in
• insurance claims will be ignored for six months if used to replace or repair
• your children’s savings if they’re under £3,000 or in a Junior ISA or Child Trust Fund.

The Department for Work and Pensions (DWP) are responsible for determining what savings are included or excluded in a benefits claim. This can be based on your personal circumstances. If you’re spending money or giving it to other people to reduce your total savings amount, the DWP might still consider this as part of your savings. The DWP have the final say on what does or doesn’t count towards savings, if in doubt, you can ask for confirmation of their decision in writing.  

Find out more about eligibility and claiming at GOV.UKOpens in a new window

If you’re not happy with a benefits decision, you have the right to appeal. 

Find out more about appealing at GOV.UKOpens in a new window

If you or your partner have £6,000 or less in savings, this won’t affect your claim for these benefits.

If you and/or your partner have £16,000 or more in savings, you won’t be entitled to Universal Credit.

If you and/or your partner have any savings or capital of between £6,000 and £16,000, the first £6,000 is ignored. The rest is treated as if it gives you a monthly income of £4.35 for each £250, or part of £250.

• You’re claiming Universal Credit and have £7,000 in a savings account
• the first £6,000 of it is ignored
• the remaining £1,000 is counted as giving you a monthly income of £17.40
• £1,000 ÷ £250 = 4
• 4 × £4.35 = £17.40
• £17.40 will be taken off your monthly Universal Credit payment.

For tax credits, the savings limit of £16,000 doesn’t exist. Instead, your tax credits are affected by how much income (usually interest) you receive from those savings. 

If you receive less than £300 in income from those savings, it won’t affect your tax credits.  

If you receive more than £300 in income from those savings, then £300 is deducted from your annual income, used to calculate how much tax credits you receive each year. 

You can find out more about what counts as income for tax creditsOpens in a new window in this guide at Low Income Tax Reform Group.

If you’re claiming tax credits and now have to claim Universal Credit because of a change in circumstances, for example, job loss or change, family circumstances or housing situation and you have over £16,000 in savings, you won’t usually qualify for Universal Credit.  

Any savings you have between £6,000 and £16,000 will reduce the amount of Universal Credit you’ll get. 

However, if you’re moving as part of the ‘Move to Universal Credit’ programme, (this is when nothing has changed in your life but the DWP asks you to move across to Universal Credit) any savings you have over £16,000 will be disregarded for 12 months from when you move to Universal Credit. After 12 months, the normal rules apply. 

Try to get advice from a benefits specialist before you move from tax credits to Universal Credit to make sure you understand the impact of doing so. A Citizens Advice Help to Claim adviser will be able to work out what’s best for you to do. 

Council Tax Support is run by local councils.

If you’re of working age, the amount of savings you’re allowed to have depends on the rules of the Council Tax Support scheme in your area.

Your local council can tell you more about how the scheme works where you live.

If you’re getting Pension Credit and qualify for Council Tax Support, your savings could affect how much you get.

Most people can’t make new claims for these benefits as they’re being replaced by Universal Credit.

Are you already claiming one of these benefits and you have savings worth £6,000 or more? Then you’ll need to let the office that pays your benefit know.

If you suddenly have a windfall of £16,000  or more this can also affect your right to claim these benefits.

If you have £10,000 or less in savings or investments (including your pension pot) it won’t affect how much Pension Credit you'll receive. But you might get a reduced amount if you have more than £10,000 saved.

For every £500, or part of £500, of pensions or savings you have over £10,000 – you’ll be treated as having an income of £1 a week. This is added to any other income you have, such as a pension.

If you need help with your claim, call the Universal Credit helpline free on:

Telephone: 0800 328 5644
Textphone: 0800 328 1344

8am to 6pm, Monday to Friday (closed on bank and public holidays). Calls are free.

If you live in Northern Ireland and you want to use a helpline, contact the Universal Credit Service Centre instead on 0800 012 1331 (for textphone dial 0800 012 1441), Monday to Friday, 10am to 4pm.

The helpline is currently very busy because of the coronavirus crisis. So you might prefer to use your online account if you can. Sign in at GOV.UK

If you get redundancy pay, this will be treated as savings for any means-tested benefits you claim.

Bear in mind that not all benefits are means tested. If you’ve lost your job, the main benefit you can claim is new style Jobseeker’s Allowance – and this isn’t affected by your savings.

Compensation is treated as savings for any means-tested benefits you claim. You need to tell the office that pays your benefit as soon as you get your compensation payout.

When you claim compensation for an accident, injury or disease that wasn’t your fault, the organisation you’re claiming from must tell the Department for Work and Pensions (DWP).

If you’ve been getting benefits because of the accident, the organisation might have to pay back to the amount you’ve had in benefit to the DWP. This might be deducted from your payout.

You’re not allowed to intentionally reduce your assets or savings to increase the amount you get in benefits. The DWP calls this deprivation of assets.

Deprivation of assets can include:

• giving away money
• transferring ownership of a property
• buying possessions that are excluded from means testing, for example cars and jewellery.

If you've done any of these things before making a claim for benefits, the DWP will look at when you got rid of your savings and assets.

The DWP, or your local council, will look at the evidence to decide if they consider it to be deliberate.

If, at the time, you wouldn’t have been able to predict needing benefits, it might not count as deprivation of assets.

You might be asked to provide paperwork and receipts to back up the date, and the reasons for getting rid of savings or assets.

If it’s decided you have deliberately deprived yourself of savings or assets, you’ll be treated as if you still had them. This is called notional capital.

The notional capital will be added to the assets and savings you do have. This will affect the amount you’ll get in benefits.

If your benefits have been underpaid, you could be entitled to a back payment from the DWP.

This might involve a substantial lump sum payment. This could push you over the savings limits for means-tested benefits, including:

• income-based Jobseeker’s Allowance
• income-related Employment and Support Allowance
• Income Support
• Universal Credit
• Housing Benefit
• Pension Credit.

In some cases, this payment isn’t counted as savings for one year, and won’t affect your income-related or means-tested benefits during this time.

However, where benefits have been underpaid because of an error, any payments over £5,000 can be disregarded for the length of the claim or until the award ends. This could be an official error or on a point of law

If you’re unable, or find it difficult, to plan or make a journey due to mental health conditions, you’re entitled to the Personal Independence Payment (PIP) mobility component.

If you're already getting PIP and think you might benefit from this, you don’t need to do anything. The DWP is currently reviewing all PIP claims and they'll contact you direct.

If you’ve already asked for your PIP award to be reviewed, simply continue with your request.

Claims will be backdated to 28 November 2016.

Around 70,000 people have been underpaid Employment and Support Allowance after transferring from older benefits, including Incapacity Benefit.

The people most affected are approximately the 20,000 who were entitled to the ‘severe disability premium’ and were not paid it. In some cases, people might be owed up to £20,000.

The DWP is now making backdated payments to affected customers. Payments will be made going back to the date of the original claim.

If you think you might be owed compensation, you don’t need to do anything - DWP will contact you.

If you're getting means tested benefits, any arrears of benefit you're owed under £5,000 are disregarded as capital for 52 weeks from the date they are paid.

If your payment is £5,000 or more, it will be disregarded for 52 weeks or until your benefit award ends, whichever is longer. 

These rules also apply if you move onto Universal Credit (UC) and are owed arrears relating to legacy income-related benefit entitlement.