Tax credits and lump-sum monies.

[brummie]

Hi all.

Popped this on for a friend of mine who is a bit concerned...to say the least!

About 4 years ago my friend met her partner, fell in love etc and moved in with him. They had a child which is now 3, and started claiming tax credit. She had a property that she owned, and decided to rent it out, as it was a bit of a back-up should things go wrong. The tax credits were claimed with the fact that the property earned a loss with revenue as the proceeds did not cover the mortgage. She has now found that she is expecting again, decided to sell the property which will generate an equity of about 35,000 pounds. As the partner's property is not fit for all the kids, she has decided to invest the proceeds into the dwelling to extend, providing adeqate habitation for the impending arrival.

A. Should the profits be declared to the tax credit people?
B. Will tax credits be ceased as she has an earned income?

Regards,

Momma B.

[IanM]

Re: Tax credits and lump-sum monies.

I'm not 100% sure but until she sells the house the money does not exist so there should be no problem just asking the Tax Credit people.

It may be that once she sells and obtains the cash she will no longer be entitled to tax credit until she has spent the money and will then have to make a new claim.

If she is confident that the house will sell then maybe she should consider taking out a loan to extend her partners house so that when the house sells the money goes directly to the loan people from the sale but would not have to be declared as income for Tax Credit reasons as she never received the £35,000 directly, it was used to pay off the mortgage on the house and the loan, anything left would be pocket change below any income limit so the Tax Credit payments should continue as normal.

If she's close and needs an honest builder to sort out the extension let me know by PM!

[Hurricane Puffrose]

Re: Tax credits and lump-sum monies.

personally I would err on the side of caution and advise the tax credit people of my plans, and just check what they say. She wouldn't want them saying we paid you, you didnt declare it and now you owe us XXXXXX.

[Bill-K]

Re: Tax credits and lump-sum monies.

I dunno if this is useful or not, but many years ago, we were in a position where we were renting out our old home - a flat near London. The rent was effectively paying the mortgage on the flat. Meanwhile, we were living in private rented accom. up here in Scotland - AND getting Housing Benefit toward our rent here. Many arguments with the DHSS & Council ensued, but I did my time in the local Reference Library (this was well before t'interweb !!!) - and we won the arguments.

Then - we sold our London flat, and were lucky enough to release some equity from that. Just a few grand - but nice. I declared this, of course - and our local council immediately withdrew our Housing Benefit. I could have understood, if we had won the Lotto, but this was just the proceeds from our former home - a few measly grand.

I proceeded to detail the 'disbursement' of this few grand, and the Rules and Regs stood me in good stead. There were many, many reasons for 'discounting' such income, yet the Council 'experts' had no idea of them. We got to effectively 'write off' the apparent profit we had made from the sale of our humble flat - our former belovéd home.

This was many years ago, but the rules change so slowly, sometimes. They are so much more easily accessible these days, though. As Puff so wisely suggests - err on the side of caution, though. Peeps like IanM will be up to date with current building and housing legislation, I'm sure - and if he's contributing here, then surely he can't be ALL bad !!!

[brummie]

Re: Tax credits and lump-sum monies.

Not sure if this may ring some bells with the beagles, but here goes....

If the monies were to be placed into a "PROJECT BANK ACCOUNT", possibly under "ESCROW" rules, then she could demontrate that the funds are soley for the use of development to the property, which could be deemed un-fit for purpose for the size of the family?

Not sure.... Tax credit told her that all the benifits will be cancelled once she receives the equity

[Bill-K]

Re: Tax credits and lump-sum monies.

That seems like a plan, Brummie - but it will probably be subject to every payment from that account being scrutinised by HMRC. If the funds are to be used SOLELY for the development of the property, then it sounds good to me in principle. Basically, if the property can be clearly proved to be too small - AND - there are no outgoings for non-essentials (eg., swimming pool, outdoor hot-tub, etc) then I think that idea has wheels.

The clerks are probably correct in saying that the benefit will be stopped as soon as the equity hits her bank. I think the onus is then upon her to prove that it is being used to improve her housing (as opposed to "developing the property" - capische ?) She may need to 'borrow' from that equity to make up for the (hopefully temporary) shortfall in her Tax Credits, but as long as she keeps a record of this, and only 'borrows' what she WOULD have received in TC's, then she should be OK. It may take a while to thrash out, and may need to go to appeal, but it looks good to me.

In my case, I made a point of being completely upfront about all this. Don't hide anything. Sure - we lost Housing Benefit for a few weeks while it all got looked at. I was told all sorts of stories that had NO foundation. Basically, these peeps form an opinion, and then look for whatever regulations they can find to support that. They then leave it to us to find the regs that support OUR claim. It ain't right - but it's the way it is. It looks like you're ahead of the game, there, though.

Just make sure you have a 'Plan B' in place. I had to take the DHSS to a tribunal, and THEN appeal to the SS Commissioner to get the decision overturned. I got there in the end, but it can be a long slog.

[brummie]

Re: Tax credits and lump-sum monies.

ok thanks Bill....

I will tell her to start making some enquiries....

[enaid]

Re: Tax credits and lump-sum monies.

It's been mentioned twice on this thread that rental was taken from a property to cover the mortgage on it. You can only offset the Interest part of your mortgage for tax relief the rest is classed as income minus any repair or agent fees.