Today’s Autumn Budget announcement included Universal Credit rule changes that are good news for low-income families. It could mean more money in your pocket if you’re on Universal Credit and hoping to get back into work.
Here, I take a look at the rules changes in more detail and investigate what the changes could mean for you.
What are the Universal Credit rule changes?
Rishi Sunak has announced in his Autumn Budget that Universal Credit’s complicated taper rules will be changing. The taper of 63% will be reduced to 55% by December 2021. This means that if you claim Universal Credit and you work or are going back to work, then you could end up with more money in your pocket.
The changes mean you can keep more of your cash because you won’t lose as much Universal Credit when you start to earn money.
Under the old system, you would only get an extra 37p in your pocket for every £1 you earned. That’s because 63p would be taken away for every £1 you earned (after Income Tax, National Insurance and pension contributions). With the rule changes, you will keep 45p of every £1 you earn, so you’ll get to keep more of your money.
How does the Universal Credit taper work?
The Universal Credit taper works like this:
- Once you earn over £293 per month, you start to lose Universal Credit. You can earn up to £515 per month before you start losing Universal Credit if you don’t get housing support.
- The amount you will currently lose is 63% of your earnings above £293 per month. This is changing to 55% in December.
- You will receive less money in your Universal Credit payment as the taper amount will be deducted from this.
How could the Universal Credit changes affect you?
The amount of Universal Credit you get depends on a variety of factors, such as whether you are in a couple, whether you have children, whether you are disabled and the level of your savings. Let’s take a look at a couple of examples.
If you get Universal Credit of more than £445 per month and you currently take home £1,000 per month (after tax, National Insurance and pension contributions) you could end up with £56 more per month after the rule changes. That’s because under the current taper rate you lose £445 per month (£1,000 minus £293 = £707; £707 x 63% = £445). Under the new taper rate, you will lose £388 per month (£1,000 minus £293 = £707; £707 x 55% = £388).
If you get Universal Credit of more than £760 per month and currently take home £1,500 per month, you could see an even bigger cash boost of £97 per month. That’s because under the current taper rate you lose £760 per month (£1,500 minus £293 = £1,207; £1,260 x 63% = £760). Under the new system, you will lose £663 per month (£1,500 minus £293 = £1,207; £1,207 x 55% = £663).
Who will the Autumn Budget changes benefit most?
The Autumn Budget changes will benefit low-income families the most. This is because they have the highest level of Universal Credit and will not lose so much of this benefit when they see their wages increase.
The changes will not benefit people who are out of work as the amount of Universal Credit they receive is unaffected. For people who can’t work, it won’t make up for the recent £20 per week reduction in Universal Credit.
Please note that tax treatment depends on your individual circumstances and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Could you be rewarded for your everyday spending?
Rewards credit cards include schemes that reward you simply for using your credit card. When you spend money on a rewards card you could earn loyalty points, in-store vouchers airmiles, and more. The Motley Fool makes it easy for you to find a card that matches your spending habits so you can get the most value from your rewards.
Was this article helpful?
YesNo
About the author
A Chartered Accountant, Mum and personal finance geek, Alice writes on topics including budgeting, saving and investing.
Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.
This post was originally published on Motley Fool
