Inheriting a house while on benefits in the UK

Inheriting a house can be an emotional and complex experience, especially when you’re also receiving benefits. If you find yourself in this situation, it’s important to understand how inheriting a property can affect your benefits, and what steps you can take to navigate the system successfully.

Understanding how inheriting a house will affect my benefits

If you’ve inherited a property, you might be worried about losing the benefits you currently receive. However, whether or not your benefits are affected, depends on what type of benefits you receive.

What can I do if I inherit a property while on benefits?

If you end up inheriting a property while receiving benefits, don't forget to tell the Department for Work and Pensions (DWP) and any other relevant departments about it. This is particularly important if the inheritance causes your savings to go up.

By keeping the authorities in the loop, you can make sure you're still getting the right amount of benefits, and steer clear of any problems or fines.

What happens if I don't disclose my inheritance to DWP?

It’s incredibly important to keep the DWP and relevant departments informed about any changes in your circumstances, including inheriting a property. If you don’t, you could end up being paid too much, which you’ll have to eventually pay back from any future benefits you receive.

You may also have to pay a £50 penalty fee!

If you try to hide your inheritance intentionally, it's considered benefit fraud and can result in consequences such as:

• Fines (between £350 and £5,000)
• Prosecution for benefit fraud and receiving a criminal record
• Losing your benefits for up to 3 years
• Given a prison sentence

Make sure to keep the authorities in the loop of any changes in your financial situation!

What are the types of benefits?

There are two types of benefits, to understand how you’ll be impacted from the inherited property, you’ll need to understand the difference between both benefits.

Means-tested benefits

Means-tested benefits are government benefits that are granted based on the individual income and financial situation. Means-tested benefits are typically provided to individuals or households with low income or limited financial resources.

How are the benefits calculated?

The amount of benefits you receive is determined by your income, savings, investments and other assets such as a property. If you have a higher income or significant assets, you could potentially receive a lower amount of means-tested benefits, or might not be eligible for them.

Examples of means-tested benefits include:

• Income Support
• Income-related Employment and Support Allowance
• Income based Job Seeker’s Allowance
• Housing Benefit
• Universal Credit
• Pension Credit
• Tax credits (Child Tax Credit and Working Tax Credit)
• Council Tax Support
• Social Fund (Sure Start Maternity Grant, Funeral Payment, Cold Weather Payment)

Examples of non-mean tested benefits include:

• Attendance Allowance
• Bereavement Support Payment
• Carer’s Allowance
• Disability Living Allowance (DLA)
• New style Employment and Support Allowance (ESA)
• Personal Independence Payment (PIP)
• State Pension

What benefits are affected by inheritance?

If you inherit a property, any means-tested benefits you receive could be potentially affected, whereas non-means-tested benefits will not be affected.

The following benefits are affected by inheritance:

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

Means-tested benefits are a type of government support that takes into account an individual's financial situation, including their savings, to determine eligibility.

Savings can be made up of:

• Cash savings
• Money in the bank
• Stocks, bonds and Individual Savings Accounts (ISAs)
• Property ( that isn’t your main home)

What are the savings limits?

When you inherit a property, it can affect your total savings, which in turn can impact your eligibility for means-tested benefits. These benefits take into account your savings when calculating how much support you’re entitled to receive.

The savings limits vary depending on different factors, such as the type of benefit you’re claiming, your age, and whether you live in a care home.

Here are some examples of the savings limits that may apply to you:

For Universal Credit, if your benefits are :

• Under £6000: Your benefit claim will not be affected.
• Between £6,000 and £16,000: You could potentially lose some of your benefit payment.
• More than £16,000: You’re not entitled to the benefit.

Does my home count towards my savings?

No! The good news is that your main home doesn't count towards your savings for means-tested benefits. However, any property that isn’t your home such as an inherited property, is counted as part of your savings.

Why are means-tested benefits impacted by my inheritance?

If you inherit a house while receiving means-tested benefits, it could impact your eligibility for financial support. That's because the value of the inherited property is factored into the calculation of your assets and income.

If the value of the house causes your total assets to exceed a certain threshold, you may no longer qualify for some means-tested benefits.

Let's say you inherit a house that's worth a lot of money. The value of that property would be added to your assets, which could end up putting you over the limit for certain means-tested benefits. This might mean that you get less financial support, or you could even lose your benefits altogether, depending on your situation.

It's also important to note that if you decide to sell or rent out the inherited property, any income you earn from it will be factored in when calculating your means-tested benefits. This could affect your eligibility for financial support, and the amount of help you receive.

So, it's important to consider all the factors before making any decisions about the inherited property.

What benefits aren’t affected by inheritance?

If you inherit a property, a number of non-means- tested benefits won’t be affected, and it’s important to recognise which ones. This will help you to calculate your finances and assess how you can go about bills and spending in the future.

The following benefits aren’t affected by inheritance:

• Disability Living Allowance
• Carer’s Allowance
• Contribution-based Employment and Support Allowance (CB ESA)
• Contribution-based Style Jobseeker’s Allowance
• Attendance Allowance
• Personal Independence Payment

What happens if I transfer the ownership of the inherited property?

Transferring the ownership of an inherited property can impact your benefits. If you transfer ownership to another person without receiving the full market value of the property, this could be considered a deprivation of assets.

This means that you intentionally got rid of an asset to try to reduce the amount of savings that are taken into account, when assessing your eligibility benefits.

If the authorities find out, they might still count the property as yours and reduce your benefits. So, it's best to tell them if you plan to give away the property. That way, you can avoid any problems later on.

Can you get your benefits back if you sell or give away an inherited property?

If you're not living in the inherited property, and you're actively trying to sell it, the property will be considered "disregarded" for a period of six months. However, once you've sold the property and received the sale proceeds, the amount of money you have may push your total savings above the £16,000 limit.

As a result, you may no longer be eligible for means-tested benefits that have this savings limit.

Can I still receive benefits if I move into my inherited property?

Yes! As your home is considered an exempt asset for means-tested benefits, it means that it won't be counted as savings indefinitely as long as you live in it.

What happens if I'm renting and inherit a property?

If you've inherited a property and are planning to live in it as your primary residence, you don't need to worry about it affecting your benefits right away. For the first six months, the value of the property won't be counted, which gives you enough time to move out of your rented home without any changes to your benefits.

Once you start living in the inherited property as your main home, the value of the property will be "disregarded" indefinitely. This means that it won't be counted as part of your savings, so you won't have to worry about it affecting your means-tested benefits.

Selling an inherited property

Selling an inherited property means that you're putting it up for sale to get money. If you sell it within six months and you haven't been living in it, the property value won't be counted against you. However, once you sell it, you may have too much money in your savings to be eligible for means-tested benefits.

Do I have to pay capital gains tax?

If you receive benefits and sell an inherited property that's not your primary residence, you may still be subject to capital gains tax. The tax owed is based on your income and the taxable profit from the sale. You should seek advice from a solicitor or financial adviser to understand your legal obligations, including capital gains tax.

Avoiding inheritance from affecting benefits

1. Inform the authorities: As soon as you become aware of your inheritance, you should inform the Department for Work and Pensions (DWP), and any other relevant benefits department.

2. Seek professional advice: Speak with a solicitor or financial adviser to understand your options and obligations, including tax implications and how to protect your benefits.

3. Use the property as your primary residence: If you plan on living in the inherited property as your primary residence, it won’t be counted towards your savings for means-tested benefits.

4. Put the property on the market: If you don't plan on living in the inherited property, you can put it on the market to sell. The property will be "disregarded" for six months as long as you have taken the steps to sell it.

5. Avoid transferring ownership: Transferring the ownership of an inherited property can be considered a deprivation of assets. This means intentionally getting rid of an asset to reduce the amount of savings taken into account for benefits. This could lead to a reduction in benefits, or delay in reinstating benefits until the full value of the property is repaid.

6. Consider a trust: Setting up a trust for the inherited property can help protect your benefits by keeping the property separate from your own savings and assets.

It's important to understand your rights and obligations when inheriting a property while on benefits. Seeking professional advice and informing the relevant authorities can help avoid any potential issues or penalties.

Summary: Understand the impact of inheritance on your benefits!

Inheriting a property can be a welcome surprise, but it's important to understand how it may impact your benefits. Depending on the amount, it might impact your entitlement to means-tested benefits like Universal Credit or Income Support.

That's why it's essential to let the Department for Work and Pensions (DWP) know about any inheritance you receive. If you don't, you might end up with an overpayment of benefits and even face legal consequences. The good news is that the DWP will look at your situation and decide if it affects your eligibility for benefits, so you don't need to worry too much.

It's always best to be honest and upfront with the DWP about your financial situation, so they can give you the right advice. If you need more help, you can always talk to a financial advisor or the DWP for guidance.