Tax credits: are you eligible?
Tax credits can ease the financial burden of divorce and help you get a mortgage for one says Neasa MacErlean .
If your income has been reduced as a result of your divorce, or you are now struggling to cover costs as a “single” parent post-split, tax credits are definitely something worth investigating. Even if your household has a gross income of more than £50,000 a year, you could be eligible for some money. “You could say that the tax system supports divorce through Tax Credits,” says family mediator Mairead McKeever of Harmony Mediation. “If the wife (as it usually is) goes back to work for t least 16 hours a week, then Working Tax Credit kicks in – and that money can actually help facilitate the divorce.”
You could find yourself thousands of pounds better off with these payments and in some cases they will make all the difference to your standard of living. “There are now a number of mortgage companies who will lend to low earners on tax credits,” points out McKeever.
This is paid to people with children, whether in or out of work. You get the money if your income is low enough and if your child is either under 16 or in full-time education and under 19.
“Everyone should apply for tax credits if they think they are eligible,” says independent financial advisor Garry Spencer of Wilbury Financial Management (call 01903 213 222). “Divorcees tend to have less income than people who are married so it is particularly important for them to consider doing so.”
The amount you receive depends on various factors including a) the number of children you have b) their ages and c) your income. Even households with relatively high income levels – over £50,000 a year – can be eligible due to Chancellor Gordon Brown’s pledge to help all parents – not just those who are less well off.
If you live with your partner, however, your incomes will be added together which may price you out of the system. If you don’t, the maximum annual payments are £545 per family with extra payments of £1,765 per child (or £2,350 for a disabled child).
Working Tax Credit
“As a result of most divorces, the woman will decide she needs to go back to work – and Working Tax Credit will be very useful to her if she is on a low income,” says Garry Spencer.
Work Tax Credit is for people who are:
- employed or self-employed (either on their own or in a partnership)
- who usually work 16 hours of paid work each
- expect to work for at least four weeks
- are aged 16 or over and responsible for at least one
- are disabled
- are 25 or over and usually work at least 30 hours a week
If your income is under £5,220 a year, you get the maximum amount of Working Tax Credit, otherwise your entitlement is reduced. There are several different payments that you could receive – but the main one is the “basic element” of £1,665 a year in 2006/07.
Will separating affect my credits?
In a word, maybe. You and your partner should first agree the date of separation and then – if you are claiming tax credits – you must inform the HM Revenue & Customs of this date within one month. From April 2007, you face the possibility of a fine if you fail to do so.
The date of separation (not any other date such as that of a divorce) is the crucial one as, when you notify HMRC. you will be ending your joint claim and going forward as separate individuals.
‘Agreeing a separation date is something that needs to be discussed – as people often have very different views as to the date,’ says Robin Williamson of the Low Incomes Tax Reform Group. Arguing will simply cause delays.
“It’s important that once you have agreed the date, you stick to it,’ says Spencer. “You could even put it in writing between you.”
You also need to work out who wil receive the Child Tax Credit. “To be eligible to claim child tax credit you must be responsible for the child. When two people share responsibility, child tax credit goes to the person with main responsibility,” explains Williamson.
Usually it’s pretty straightforward – the parent living at the same residence as he children is often considered the main carer.
“In practice, most people who were eligible for the Tax Credits before divorce or separation will already be claiming,” says Mairead McKeever. “But some people will become eligible on separation – usually because they start working or because the household income has sunk low enough to make them eligible.”
Generally, as children stay with the mother it tends to be women who claim Child Tax Credit. “We always advise people to check their entitlement to welfare benefits,” adds McKeever.
If you think you’re owed, call the Tax Credit helpline (0845 300 3909) and ask for the joint Child and Working Tax Credit application form (form TC600). You need your national insurance number and details of earnings (such as those given to you by employers on forms including the P60 or P45).
Her Majesty's Revenue and Custom handles Tax Credits. Unfortunately calculations are notoriously difficult to understand and many people have problems with them. Fr free help with making your application, contact the Citizens Advice Bureaux.
InsideDivorce.com recommendsSource: www.insidedivorce.com