How savings can affect benefits
An overview of the capital rules for means-tested benefits, and where to find further information.
Means-tested benefits – also known as income-related benefits – are based on the principle that people should be expected to meet their needs from their own resources before getting help from the state. For means-tested social security benefits, both income and capital are taken into account when determining whether a person or family is entitled to benefit, and how much they get.
This page gives a brief overview of how “capital” – savings and other assets – affects means-tested social security benefits. Means-testing also occurs elsewhere – for example, for tax credits, social care, and education grants – but the rules differ from those in the benefits system.
What benefits are means-tested?Means-tested social security benefits include:
- Income Support
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
- Housing Benefit
- Universal Credit
- Pension Credit
“Capital” is not defined but includes lump-sums, one-off payments, savings, investments, property, land and other assets, unless the legislation states specifically that it should be disregarded. The regulations for each benefit will set out the forms of capital to be disregarded, but examples include personal possessions and (for owner occupiers) the value of the home they live in.
Whose capital counts?For couples, both the claimant and their partner’s capital will be taken into account. For benefits purposes, people count as a “couple” if they are married or in a civil partnership, or two people not married to each other or in a civil partnership but living together as if they were.
A dependent child’s capital is ignored.
How is capital taken into account?The first £6,000 of capital (or £10,000 for claimants of some benefits if they are in a care home) is ignored and does not affect your benefit. No benefit is payable if total capital exceeds £16,000. For every £250 of capital between the lower and upper limit, an income of £1 a week is assumed and this will reduce the amount of benefit payable. This is known as “tariff income.” For Universal Credit, the amount is £4.35 a month for every £250 of capital and it is referred to instead as “assumed monthly income.”
The tariff income/assumed monthly income rate is not intended to reflect any realistic rate of return a person could get (such as from a savings account).
Different rules apply for Pension Credit. The first £10,000 of capital is ignored, and the claimant is treated as a having a “deemed income” of £1 a week for every £500 of capital above this amount. There is no upper capital limit.
For Housing Benefit claimants above the qualifying age for Pension Credit, the £10,000 lower capital limit also applies, as does the more generous tariff income rate of £1 a week for each £500 of capital. However, the upper capital limit of £16,000 beyond which no benefit is payable still applies.
What is deprivation of capital?If a person deliberately gets rid of capital in order to secure or increase their entitlement to a means-tested benefit, it may still affect their benefit. This is known as “deprivation of capital.” A person may be caught by this rule if, for example, they transfer the capital to another person, use it to buy a house, or (unless the benefit claimed is Universal Credit or they are over State Pension age) they use it to pay off a debt which does not need to be paid off immediately.
If it’s decided a person has deliberately deprived themselves of capital, they’re treated as still possessing it, and their benefit may be reduced or stopped accordingly. This is known as “notional capital.”
Where can people find further information?Links to selected online sources are given below. The most comprehensive and accessible guide to the capital rules is the Child Poverty Action Group’s annual Welfare benefits and tax credits handbook.
The capital rules are however extremely complicated, with many potential pitfalls for claimants and advisers alike. The best advice may be to refer a person to a specialist welfare rights advice service. The AdviceLocal postcode finder can be used to locate local welfare rights advice providers.
Further information- DWP: Decision maker’s guide Chapter 29 – IS & JSA: Capital
- DWP: Decision maker’s guide Chapter 52 – ESA: Capital
- DWP: Decision maker’s guide Chapter 84 – Pension Credit: Deemed weekly income from capital
- DWP: Housing Benefit guidance Part B – Assessment of capital
- DWP: Advice for decision making Chapters H1 and H2 – Universal Credit: Capital
- DWP: UC guidance: Treatment of capital (PDF)
- DWP: UC guidance: Capital disregards (PDF)
- DWP: UC guidance: Deprivation of capital (PDF)
- revenuebenefits: Universal credit: Capital rules
- universalcreditinfo.net: Capital
The Commons Library does not intend the information in this article to address the specific circumstances of any particular individual. We have published it to support the work of MPs. You should not rely upon it as legal or professional advice, or as a substitute for it. We do not accept any liability whatsoever for any errors, omissions or misstatements contained herein. You should consult a suitably qualified professional if you require specific advice or information. Read our briefing for information about sources of legal advice and help.