How Much Savings Can You Have on Universal Credit?

Did you know that over 5.9 million people in the UK were claiming Universal Credit as of 2023? For many, this benefit is a lifeline, designed to help individuals and families manage essential living expenses.

However, your savings and assets can significantly affect your eligibility and entitlement under this means-tested system.

The savings thresholds for Universal Credit can be complex to navigate. Many claimants are unaware of how their financial circumstances, particularly savings, influence their payments.

This guide explores the rules around savings, the impact on benefits, and strategies to manage your finances while remaining compliant.

What is The Savings Thresholds for Universal Credit?

The government uses a tiered system to assess how savings affect Universal Credit claims. These thresholds determine your entitlement and any reductions in payments.

Savings Below £6,000

Savings under £6,000 are disregarded entirely during the Universal Credit calculation. Whether in cash, a bank account, or an investment, this amount does not reduce your payments.

This threshold is particularly important for low-income individuals who may have small emergency funds or modest savings.

Savings Between £6,000 and £16,000

If your savings fall within this range, they will impact your Universal Credit payments. The Department for Work and Pensions (DWP) calculates a “tariff income” based on your savings.

For every £250 over £6,000, your Universal Credit is reduced by £4.35 per month. This means that higher savings in this range progressively reduce your entitlement.

Savings Over £16,000

Having more than £16,000 in savings or assets disqualifies you from Universal Credit altogether. This upper threshold is strict and applies to all claimants, regardless of financial need.

Example Scenario: Impact of Savings on Payments

Consider a claimant with £10,000 in savings. The amount over £6,000 is £4,000. Divided by £250, this equals 16 tariff income units. At £4.35 per unit, their monthly Universal Credit is reduced by £69.60.

What are the Savings Rules for Universal Credit?

Universal Credit is one of the UK government’s flagship welfare reforms, designed to streamline the benefits system. Before its introduction, individuals and families in need often had to navigate multiple separate benefits, each with its own eligibility criteria and application process.

Universal Credit replaces six older benefits, commonly referred to as “legacy benefits.” These include Income Support, Jobseeker’s Allowance (income-based), Employment and Support Allowance (income-related), Housing Benefit, Child Tax Credit, and Working Tax Credit.

The primary goal of Universal Credit is to simplify welfare, reducing bureaucracy for both claimants and the government. By combining several benefits into a single payment, Universal Credit aims to provide a more straightforward and accessible safety net for those in need.

This payment is usually made monthly, and for most claimants, it includes a housing allowance to help cover rent or other housing costs.

What Does Universal Credit Cover?

Universal Credit is designed to support a wide range of needs for individuals and families. It provides financial assistance in several key areas:

1. Daily Living Expenses: The benefit helps with everyday costs, such as food, utilities, clothing, and other essentials needed to maintain a basic standard of living.

2. Housing Costs: For renters, Universal Credit can include help with rent payments, while for homeowners, it may contribute to mortgage interest payments or other housing-related expenses.

3. Childcare Costs: Working parents can receive support for registered childcare services, enabling them to balance work responsibilities with raising children.

4. Additional Needs for Disabled or Severely Ill Claimants: Universal Credit provides extra financial support to individuals with disabilities or long-term health conditions, helping them manage their unique challenges.

This comprehensive approach ensures that Universal Credit meets the diverse needs of the population it serves, particularly for those experiencing unemployment, low income, or unexpected financial difficulties.

Why Savings Are Important?

Eligibility for Universal Credit is not just based on income or employment status, it also includes an assessment of your savings and assets. This process is known as a means test, which evaluates your financial resources to determine whether you qualify for the benefit and how much you are entitled to receive.

Savings are particularly important because they are seen as a measure of your ability to support yourself financially. While Universal Credit is intended to provide help for those in need, it is not designed to replace income or savings for individuals who have significant financial reserves.

By understanding the savings limits, you can:

1. Make Informed Decisions: Knowing how your savings will be assessed allows you to plan ahead, ensuring that you remain eligible for support if needed.

2. Avoid Unintended Breaches of Rules: Exceeding savings thresholds, whether intentionally or unintentionally, could result in reduced payments or even disqualification from Universal Credit. This may also lead to overpayment demands or penalties if the DWP determines that savings were not reported accurately.

The savings assessment is a critical part of the Universal Credit system. It ensures that the benefit is targeted at those who genuinely need financial assistance, while encouraging individuals with significant savings to use their resources before turning to government support.

Understanding these rules not only protects your eligibility but also helps you navigate the complexities of the welfare system with confidence.

How the DWP Assesses Savings?

What Counts as Savings?

The DWP assesses all forms of capital to calculate your savings. This includes:

• Cash in hand or in bank accounts
• Fixed-term deposits, such as ISAs or bonds
• Shares, stocks, and other investments
• Second homes or other properties (excluding your primary residence)

Assets Excluded from Savings

Certain assets are disregarded in the savings assessment. These include:

• Your main home
• Pensions that are not yet accessible
• Business assets, in cases where you’re self-employed
• Personal injury compensation held in a trust

Understanding what is included or excluded ensures you accurately report your financial situation.

What is Tariff Income?

Tariff income is an assumed income from your savings, calculated at £4.35 per £250 above £6,000. This calculation does not depend on actual interest earned but is a notional amount used to reduce your entitlement.

What is Deprivation of Capital?

Deprivation of capital refers to situations where claimants intentionally reduce their savings to qualify for Universal Credit. Examples include:

• Gifting large sums of money to family or friends
• Making unnecessary purchases, such as luxury items
• Transferring money into accounts that are harder to trace

Consequences of Deprivation of Capital

If the DWP suspects deprivation of capital, they may treat the disposed amount as if you still have it. This could reduce or eliminate your Universal Credit entitlement. In severe cases, it may lead to penalties or investigations.

What are the Impact of Savings on Universal Credit Payments?

Savings play a significant role in determining your eligibility and entitlement for Universal Credit. As a means-tested benefit, Universal Credit is designed to provide financial support to those who genuinely need it, and your savings are an important indicator of your financial resources.

To ensure fairness, the Department for Work and Pensions (DWP) conducts a comprehensive capital calculation to assess the total value of your savings and assets.

The DWP uses this information to determine whether your savings fall within the allowable thresholds for Universal Credit. Depending on the amount, your savings may have no impact, reduce your monthly payments, or disqualify you entirely.

This process ensures that those with substantial financial reserves are not unduly drawing from public funds while providing essential support to those in need.

How Are Savings Calculated?

When calculating your savings, the DWP considers a wide range of assets and financial resources. The capital assessment covers the following:

1. Cash in Hand or Bank Accounts: Any money you hold in cash or accessible bank accounts is included in the calculation. This includes current accounts, savings accounts, and any other deposits you can access directly.

2. Fixed-Term Investments: Investments such as Individual Savings Accounts (ISAs), fixed-term bonds, or similar financial products are considered as part of your savings. These accounts often accumulate interest, and their total balance at the time of assessment will count towards your savings threshold.

3. Shares and Other Financial Investments: The value of any shares, stocks, or mutual funds you hold is included in the assessment. The DWP considers the current market value of these investments, which can fluctuate over time.

4. Second Homes or Other Properties: Any property you own, aside from your primary residence, is treated as capital. This includes second homes, holiday homes, or investment properties. The DWP will assess the market value of these properties, deducting any outstanding mortgage balance to determine their net worth.

What’s Excluded?

It’s important to note that not all assets are included in the savings calculation. For example, your primary home, certain pensions, and some business assets may be exempt under specific circumstances. This ensures that the assessment focuses primarily on liquid assets and other tangible financial resources.

Why Savings Matter in the Universal Credit Calculation?

The DWP considers savings as part of their overall assessment because they reflect your ability to self-support during times of financial difficulty. If you have significant savings, the system assumes that these resources should be used to meet your needs before turning to public assistance.

Understanding how your savings are calculated not only helps you prepare for your Universal Credit application but also ensures that you remain compliant with the rules, avoiding penalties or overpayment claims.

Strategies for Managing Savings on Universal Credit

Budgeting Effectively

Using budgeting tools can help you manage your savings while staying within the thresholds. Apps like Monzo or budgeting spreadsheets can track expenses and ensure compliance with DWP rules.

Investing in Necessary Expenses

One way to reduce savings legally is to invest in essential items. This could include:

• Home repairs or renovations
• Paying off legitimate debts
• Purchasing appliances or other necessary household items

Seeking Professional Advice

Free advice is available from organisations like Citizens Advice and Turn2Us. They can guide you on managing your finances without risking your benefits.

Conclusion

Savings play a crucial role in determining Universal Credit eligibility. By understanding the rules, thresholds, and potential impacts, you can plan your finances effectively and avoid disqualification.

Whether through careful budgeting, essential spending, or seeking professional advice, managing your savings wisely is essential for staying within the regulations.

FAQ

Are my partner’s savings included in the calculation?

Yes, in joint claims, both partners’ savings are combined for the capital assessment.

Do ISAs and bonds count as savings?

Yes, most forms of savings, including ISAs and bonds, are included in the assessment.

Can I reduce my savings to qualify for Universal Credit?

While reducing savings through legitimate expenses is allowed, deliberate reduction to meet eligibility (deprivation of capital) may result in penalties.

What types of assets are excluded from the assessment?

Your main home, pensions not yet accessible, and certain business assets are excluded.

How does owning a second property affect my claim?

A second property is generally counted as capital, unless it serves a specific purpose, such as housing a dependent relative.

Is there a penalty for not declaring savings accurately?

Failing to report your savings correctly can result in overpayment recovery, penalties, or even legal action.