How a PPI windfall could impact benefits, care funding and inheritance tax

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Written by: Paloma Kubiak
20/08/2019
There are just days to submit a compensation claim for mis-sold Payment Protection Insurance (PPI). But how could a windfall affect your benefits, later life care funding and inheritance tax?

‘Animatronic Arnie’ has been urging consumers to claim for mis-sold PPI for months and the deadline is fast approaching – Thursday 29 August 2019. See YourMoney.com’s PPI claim guide for more information.

More than £35.7bn has been paid out in compensation since January 2011 and according to the Financial Conduct Authority (FCA), the average claim stood at £2,004 in 2018.

But some claimants have received life-changing sums of money after complaining to their lender. Earlier this month, MoneySavingExpert.com reported a business owner reclaimed £247,000 while other readers have received PPI windfalls worth tens of thousands of pounds.

But how could a PPI payout affect your benefits, later life care home funding and what do you need to know about inheritance tax?

Gordon Andrews, tax and financial planning expert at Quilter explains…

Benefits

There are several means-tested benefits in the UK and several of these are impacted by savings or a lump-sum payout such as a PPI windfall. These include income-based jobseeker’s allowance, income-related employment and support allowance, housing benefit, income support, pension credit and universal credit.

When it comes to these benefits, if you or your partner have £6,000 (£10,000 if you are over state pension age) or less in savings this will not affect your claim for these benefits and if you or your partner have £16,000 or more in savings, you will not be entitled to any of these benefits.

If you have savings between £6,000 and £16,000 then 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.

Social care funding

For social care means testing, generally, the council helps to pay for care costs if you have savings less than £23,250. However, the calculation of what is and is not included in your estate is quite complicated.

If you have just received the PPI windfall before the assessment, then this will likely be impacted during your assessment. If you’re currently receiving means tested funding it is unlikely to have an impact unless it is a substantial sum of money.

Inheritance tax

There is the option to give the windfall away as a gift to a loved one. This will be subject to inheritance tax rules. For instance if you die within seven years then it will be subject to inheritance tax.

You’ll need to keep in mind that by giving it away you would not be better off for means-tested benefits as you would have to justify why you have given it away. It may appear like a deliberate deprivation of assets and so you could lose benefits in a worst case scenario. See YourMoney.com’s guide on Inheritance Tax for more information.

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