DWP one-year cash warning to thousands of households over Universal Credit move

The Department for Work and Pensions has issued a one-year warning to households who are moving to Universal Credit. It has clarified the rules that apply to capital limits as it emerged thousands of tax credit claimants have had their payments terminated for failing to make the switch.

Figures first published by BirminghamLive show that of the 824,050 individuals who were sent migration notice letters between July 2022 and March 2024, 400,940 (49 per cent) have transferred to Universal Credit, 238,990 (29 per cent) are still in the process of doing so and the remaining 184,120 people (22 per cent) have failed to make the move by the three-month deadline and saw their old benefits stopped. Most were on tax credits.

The National Audit Office had earlier this year raised concerns over the number of people who don't migrate to Universal Credit, saying one reason given was that households believed they had too much cash in their bank accounts. The capital limit for Universal Credit entitlement is £16,000 and the NAO study showed that some couples on tax credits had more than this so they thought they wouldn't be able to get Universal Credit.

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However, there are exemptions in place to help people transition from tax credits, the DWP says. In its guidance, it explains: "To continue receiving financial support you must claim Universal Credit by the deadline date given in your letter. This is three months from the date the letter was sent out. If you cannot claim Universal Credit by the deadline date, you should contact the Universal Credit Migration Notice helpline as soon as possible.

"You may be able to get more time to make a claim if you have a good reason. You must request this before the deadline date on your letter. As your benefits are ending and you need to move to Universal Credit some of the normal eligibility rules for claiming are different.

"If you receive tax credits, you can make a Universal Credit claim even if you have money, savings and investments of more than £16,000. After 12 months, normal eligibility rules will apply. You will not be eligible for Universal Credit if you still have more than £16,000 in money, savings and investments. If you apply after the deadline date and have money, savings and investments of more than £16,000 you will not be able to claim Universal Credit."

What this all means is that the capital limits are set aside for 12 months for tax credits claimants making the move but you'll need to bring your savings down to less than £16,000 to stay on Universal Credit after that. The lower threshold that starts to affect Universal Credit payments is £6,000 and any money you have left that's between £6,000 and £16,000 is treated as if it gives you a monthly income of £4.35 for each £250, or part of £250.

So if you have £6,300, the first £6,000 of it will be ignored and the other £300 will be treated as giving you a monthly income of £8.70. This is then deducted from your monthly Universal Credit payment.

On Universal Credit, most people will be entitled to the same amount they received on their previous benefits or more, the DWP says. But if your circumstances change before you make your claim, this may affect the amount you get.

Your Universal Credit payment is made up of a standard allowance and any extra amounts that apply to you - for example, if you have children, a disability or health condition that prevents you from working, or need help paying your rent. If the amount you are entitled to on your existing benefits is more than you'll get on Universal Credit, a top-up is available called transitional protection.

You can only get this if you have received a migration notice and claim by the deadline date on your letter. If your circumstances change after you've made your claim, any transitional protection you receive may stop.

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