Tax credits: claim while you can

Issue 265 (August 2018)

Time is running out for tax credits. Mark Willis explains.


Under the government’s timetable for the introduction of universal credit (UC), the rollout of the full service will be completed by 12 December 2018. The ‘interim period’, during which new UC claims from families with three or more children are not accepted, is due to end on 31 January 2019. Changes to pension credit (PC) have been introduced so that it will include an amount for children from 1 February 2019.

So it seems likely that from that date it will not be possible for anyone to make a new tax credits claim (but renewals can continue) – although no changes have been made yet. There are some groups who would be well advised to get their tax credits claim in now, while they can – note that only the first two groups described below can still make new claims for tax credits if they live in UC full service areas.

Families with three or more children

Families with three or more children born before 6 April 2017 should claim tax credits now because of the way the two-child limit works. In child tax credit (CTC), child elements (£2,780 a year) are payable for all children born before 6 April 2017. But under UC, after the end of the interim period, a maximum of two child elements will be payable, regardless of the dates of birth of the children. There are exceptions in both cases.1 Families whose income is too high for tax credits may be affected in the future by illness, redundancy, separation or bereavement, and be in need of social security, but stand to lose out by £2,780 per child.

For example, a couple with three children, aged 2, 4 and 6, with a joint gross income of around £40,000 in 2017/18, may find that their income is just too high to get any tax credits (although in some cases, such as if they pay for registered childcare, or if any of the children are disabled, they will be entitled to some tax credits now). They should be advised to make a claim for tax credits anyway, which will result in a ‘nil award’ due to their income. This is sound advice in any case, because if their income in 2018/19 turns out to be less than last year’s, they could be entitled to some tax credits.

However, even if their income remains at a level that is too high for tax credits, they can continue to renew a nil award. HMRC writes to claimants with nil awards as part of the annual review process, informing them that their award will be terminated unless the claimant responds. As long as they still have an ongoing nil award in tax credits, all children born before 6 April 2017 are included. If income drops and CTC becomes payable in the future, then all children for whom they were receiving CTC elements will also be included in a subsequent UC claim, made within six months of receiving tax credits.

So, if at some point after 31 January 2019, the family in this example experiences a reduction in income to £20,000, but they have a tax credits nil award, they will receive payments for all three children. If they later need to claim UC, or are transferred by the government, they will continue to receive UC elements for all three children. However, if they waited until after 31 January 2019, and made a new claim for UC after their income went down, without any linked tax credits claim they would only receive child elements for two children.

People over pension credit age

The PC rules have been amended so that an amount for a child can be included from 1 February 2019, but this does not apply to a claimant who is already getting tax credits.2 The basic amount for a child is the same as in CTC and UC, with a higher amount for one child born before 6 April 2017. However, the lower rate for disabled children is the lesser amount, as in UC. The rules on responsibility for a child looked after and accommodated by the local authority also follow the more restrictive wording used for UC, so kinship carers may find they would be better off with CTC.

Note that there is no two-child limit in the PC rules, so some claimants affected by the two-child limit, if one or both reaches PC age, may be well advised to switch to PC from 1 February 2019, but to do so they would first have to give up their tax credits or UC award.

Families with disabled children

The lower rate of the disabled child element in UC (£126.11 a month) is less than half the amount allowed in CTC for children entitled to DLA at a rate other than the highest rate of the care component (£3,275 a year = £272.92 a month). This works out as a potential loss of up to £1,762 a year. Families with disabled children, whose income is currently two high to receive any tax credits, should be advised to make a claim now if they do not live in a full service area, or, if they live in a full service area and claimed tax credits last year, to renew a claim. The comparison between legacy benefits and UC will depend on many other factors, including childcare, income and rent. There may be some families who, if their income goes down, may be better off on UC, but they will still have the option to claim it when the full service arrives. However, if they would be better off on tax credits, they need to have a claim in the system before the UC full service date.

People with capital over £16,000

There is no capital limit for tax credits, although taxable income (eg, interest) counts. However, for UC there is a capital limit of £16,000. Depending on other income, claimants with capital over £16,000 could be substantially better off by getting a claim in under the tax credits system if they can. The government has recently published draft regulations for the promised transitional protection which will apply to tax credits claimants with capital over £16,000 when they are moved onto UC as part of the managed migration process.3 The draft rules allow for any capital exceeding £16,000 to be ignored for UC purposes for a period of 12 months.


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