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Taxable "income" question regarding migration from ESA to UC

ESABenefitsUK123

I am on ESA, and I think it's contrib. As far as premiums go, I get the enhanced premium (I think this is the low income component), the support group extra, plus SDP.

Looking at my latest "DSS / DWP" tax slip for the end of the tax year, I see that my taxable "income" is £6835.50.

This amount appears to roughly match up with adding the "base" ESA weekly amount of £84.80, plus the weekly support group extra amount of £44.70. (2023 rates.)

My question is - looking at this govt webpage:

https://www.gov.uk/income-tax/taxfree-and-taxable-state-benefits

I see that contrib ESA is taxable, but UC is tax free.

Does this mean that when I get migrated over from ESA to UC, that my taxable "income" will fall to zero? (£0)

In other words, is UC completely tax free? Is that one of the perks of being on UC?

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Comments

OverlyAnxious

We don't get taxed on income below £12,570 anyway.

66Mustang

The taxability (is that a word?) is still relevant though because it would determine how much of that £12,570 (if any) is used up, so I'd be interested to hear the answer

Then again, if you earned enough to pay tax you'd probably lose your income benefits anyway, so it may well be the case that it's not a relevant question??

ESABenefitsUK123

It would be handy to have less taxable income, because then your tax personal allowance is greater, and so if I wanted to withdraw a lump sum from a private pension in order to help me move home for instance, I think the tax deducted from this withdrawal would be less.

poppy123456

As your ESA includes the disability premiums then at least part of it will be Income Related. Part CB and IR will be known as an Income Related claim.

When you eventually transfer to UC it will only be the Income Related that will stop 2 weeks later. The CB part will continue as normal and revert automatically to New style ESA. This will be deducted in full from any UC entitlement. Therefore you would still receive your ESA payment fortnightly (but less of course) and then you would receive UC monthly, which will top up your income.

UC is means tested the same as your disability premiums so both are not taxable income. Overlyanxious is correct it doesn't really matter anyway because it's still below the threshold.

ESABenefitsUK123

Just as a summary.

My current "Old-Style" ESA -

CB "base" amount (taxable)
CB support group amount (taxable)
IR SDP amount (not taxable)
IR Enhanced premium amount (not taxable)

Migration to UC will mean -
"Base" amount changes to New Style ESA (presumably taxable)
Support group changes to New Style ESA (presumably taxable)
SDP changes to UC (presumably not taxable)
Enhanced premium changes to UC (presumably not taxable)

I am guessing that New Style ESA is always CB?
And I am also guessing that New Style ESA is always taxable?

If so, that's a pity, because it would help me financially if I could withdraw a lump sum from a private pension in order to help me move home, but if the New Style CB-based ESA is taxable, that means that more of the money withdrawn from a pension would be taxed, as there would be less left over from the tax personal allowance. I think!

poppy123456

ESABenefitsUK123 said:

Just as a summary.
My current "Old-Style" ESA -
CB "base" amount (taxable)
CB support group amount (taxable)
IR SDP amount (not taxable)
IR Enhanced premium amount (not taxable)

That's correct.

ESABenefitsUK123 said:

Migration to UC will mean -
"Base" amount changes to New Style ESA (presumably taxable)
Support group changes to New Style ESA (presumably taxable)
SDP changes to UC (presumably not taxable)
Enhanced premium changes to UC (presumably not taxable)

The first 2 are correct. When you move to UC all of that is means tested so not taxable. Your UC will include the LCWRA element, standard allowance (single person) Transitional Protection because you'll highly likely be worse off due to the SDP and housing element (if you rent your home)

New style ESA is a CB benefit only and it's not possible to claim an income related top up with this. It's actually the same as CB ESA in that it's not means tested and it's taxable. The only difference is the the old CB can include an Income Related top up.

ESABenefitsUK123 said:

If so, that's a pity, because it would help me financially if I could withdraw a lump sum from a private pension in order to help me move home, but if the New Style CB-based ESA is taxable, that means that more of the money withdrawn from a pension would be taxed, as there would be less left over from the tax personal allowance. I think!

That's correct. Though I'm no expert when it comes to pensions. As you're also claiming a means tested benefit a lump sum would be treated as savings, if you have savings of more than £6,000 then this will reduce your ESA by £1/week for every £250 or part thereof over that amount.

ESABenefitsUK123

Thanks very much Poppy!

BTW, when you say:

>>When you eventually transfer to UC ...

Will my case (old style ESA, with a mix of CB and IR) still be "fast tracked" to UC (as mentioned very recently in the press), or will I still wait until approx 2028/2029 for the migration over to UC?

poppy123456

You're welcome. Yes, that has been mentioned but I haven't seen anything official yet and for me nothing changes until it's official.