Tax credits after pension age – where now?

Introduction

The tax credits scheme is scheduled for closure in April 2025. From 6 April 2025, it will no longer be possible to make a renewal claim for a current tax credit award (or to start a child tax credit (CTC) award where there is already an award of working tax credit (WTC) or vice versa).1 What about current tax credit awards before April 2025? There is already an ongoing process to ‘manage migrate’ tax credit claimants of working age, or those in most ‘mixed-age’ couples, to universal credit (UC) (ie, by setting a date for the end of the tax credit award and inviting a claim for UC), due for completion by next April. No change has been made to those plans.

Until recently, managed migration had not in practice involved tax credit claimants of pension age where the claimant was single or part of a couple both of whom had reached pension age. However, since 8 June, legislation has made specific provision for managed migration of such claimants.2 This started in July and is scheduled to be complete by April 2025. There are two main processes involved, both of which involve transitional protection intended to prevent pension-age claimants from being worse off at the point of transfer. Those entitled to WTC will be managed migrated to UC under managed migration rules very similar to those applied to working-age claimants; whereas those entitled to CTC but not to WTC will instead be manage migrated to pension credit (PC).

WTC and pension-age claimants

Migration notice

Pension-age claimants who are currently entitled to WTC (ie, working at least 16 hours a week, including those getting CTC whose WTC has been reduced to nil due to income) will be issued with a migration notice inviting them to claim UC by a specified deadline. The deadline must not usually be within three months of the date of the notice, although a shorter period is allowed if it is issued after the cancellation of a previous closure notice or migration notice – note that this change applies to all migration notices, not just pension-age claimants.3

Termination of existing benefits and qualifying claims

Termination of tax credits and the two-week run-on of housing benefit (HB) apply in the same way as for working-age claimants. If claimants claim by the final deadline, it is a qualifying claim, so they can benefit from the transitional element and transitional capital disregard as normal. In addition, there are new features of transitional protection which only apply to these claimants who have reached pension age (single claimants or both members of a couple) who were entitled to WTC and not already getting PC when the migration notice was issued.

Waiver of the upper age limit to qualify for universal credit

The basic condition in section 4(1)(b) of the Welfare Reform Act 2012 to be under pension age to qualify for UC is waived for this group.4

Disregard of deferred pension income

The notional income rules will not apply to unclaimed state, occupational or personal pensions for pension-age claimants moving from WTC for the first 12 assessment periods.5

Exemption from the benefit cap

The benefit cap does not apply to the indicative UC amount when calculating the transitional element, or the actual UC payable on an ongoing basis.6

When transitional protection reduces or ends

Transitional protection reduces (‘erodes’) in the usual way. It also ends in any of the circumstances when it would end under the working-age rules, with one important distinction.7 For earned income, the general rule that refers to the ‘administrative earnings threshold’ (currently £892 a month for a single person or £1,437 for a couple) does not apply. Instead, for pension-age claimants moving from WTC, transitional protection ends if single or combined earned income falls below 16 hours a week at the minimum wage (currently £793 a month) for three months in a row – but this does not apply in the first 12 assessment periods. Note that claimants have the option of claiming PC at any time, but there will be no transitional protection in PC for those notified to claim UC. Transitional protection in UC will end if the claimant makes a claim for PC – they will not have the option of going back to UC.

CTC only and pension-age claimants

Closure notice

Pension age claimants who are currently getting CTC only will be issued with a ‘closure notice’, rather than a migration notice. If a migration notice is issued in error to someone on CTC only, it can be treated as a closure notice.8 HB will not be affected for this group. They will not have the option of claiming UC. Note that if a UC claim is made by mistake by someone of pension age who has not received a migration notice, tax credits and HB are not terminated.9

Termination of CTC and qualifying PC claims

CTC will terminate the day before the PC claim, or the day before deadline day if no PC claim is made. If a PC claim is made on or before the deadline, or within one month of the deadline (ie, on or before the final deadline), it will qualify for transitional protection (see below). The normal three-month backdating rules for PC are amended so that a PC claim cannot be backdated to earlier than the date CTC is terminated. A PC claim made within one month of the deadline day starts on the deadline day. A PC claim made after the final deadline cannot be backdated to earlier than the deadline day and does not qualify for transitional protection.

Disregard of deferred pension income

The notional income rules will not apply to unclaimed state, occupational or personal pensions for this group for the first 52 weeks of the PC claim, or until PC ends, if earlier.

‘Protected’ mixed-age couples

Mixed-age couples who have been getting pension-age HB and/or PC continuously since before 15 May 2019 are referred to as ‘protected’ mixed-age couples.10 If they are getting CTC only, and are not eligible for WTC, they will be sent a closure notice as above. This group has the option to claim UC but there will be no transitional protection available and PC/HB will end if they are entitled to UC.11 If they are getting WTC or WTC/CTC, they will be sent a migration notice as above. They will have a chance to reclaim HB within three months of UC or previous HB award ending.

Tax credit claimants already on PC

Pension-age claimants who are already entitled to PC, including those getting WTC and protected mixed-age couples, will stay on PC with transitional protection available. They will receive a closure notice notifying them that tax credits will terminated, and this may be within less than three months, but it is understood this should not be less than two months’ notice.12

PC and transitional protection

The pension credit rules are amended to provide transitional protection to eligible claimants who undergo managed migration from a CTC only award to PC. Note: this transitional protection is only applicable to a claimant who has been sent a tax credit ‘closure notice’.13 So, although a claimant entitled to WTC can apply for PC, they will not have been sent a closure notice and the PC could not include any transitional protection.

The transitional protection in PC is in the form of a ‘transitional additional amount’, (formally speaking, an additional amount of the appropriate minimum guarantee). This additional amount is fundamentally similar to the transitional element in UC. The main features are as follows.

• Entitlement involves a comparison of the claimant’s CTC (the ‘representative weekly amount’), based on information from HMRC, plus any existing PC entitlement as on their migration day, with an indicative amount of their PC (the ‘indicative SPC amount’), which assumes they the claimant is responsible for any children including in the CTC award (but can also include children not included in CTC due to the two-child limit).
• If the representative weekly amount of CTC (plus any existing PC) is greater than the indicative SPC amount, the difference is paid as a transitional additional amount.
• The transitional additional amount is reduced (ie, eroded) by ‘relevant increases’ to PC which occur after the first day on which the transitional additional amount applies – eg, on annual uprating. Relevant increases are increases to the standard minimum guarantee or in any other additional amount.
• The transitional additional amount ceases if it is reduced to nil, the claimant stops being single or becomes part of a different couple, or is no longer responsible for any child whom they were responsible for when the tax credit closure notice was issued.
• The transitional additional amount can be redetermined after migration to PC if it is subsequently found that the representative weekly amount of CTC was incorrect, including where a change affecting the CTC was notified to HMRC before migration day but was not processed until afterwards.