In general, Martin Lewis and his website Money Saving Expert can be relied on for accurate advice, but there are times when he gets things wrong, and one of those times was April 2020, when he posted on Twitter that children's savings don't count towards the £16,000 maximum capital threshold for Universal Credit, "if in a Junior ISA or under £3k in other kids savings".
He's right about the Junior ISA, but he's wrong about the £3k. Unfortunately, his inaccurate statement has been quoted multiple times all over the internet.
It's not completely clear where he got the £3000 figure from, because it doesn't appear in the Universal Credit legislation or in the Advice for decision making (ADM) staff guide. The ADM does, however, give a very neat example of when money in a savings account should not be counted towards a claimant's capital limit, in Chapter H, section H1090:
If the legal owners
1. do not use their own money to get capital and
2. the money which has been used belongs to
2.1 a child or young person or
2.2 some other people and they say
2.2.a it is their capital and
2.2.b who the capital is to be used for
the legal owners are not the beneficial owners of the capital because they are holding it on trust.
Legal and beneficial ownership isn't something the DWP invented but a concept in law more broadly. The legal owner is essentially the person whose name is on the bank account, and usually they're also the beneficial owner. Because children can't normally have bank accounts in the sole name, their money is typically kept in a bank account which is legally owned by a parent until the child is old enough to sign their own contract with a bank. The money in that child's bank account is therefore legally owned by the parent, but the beneficial ownership - the right to make use of the value of the money - belongs to the child.
Who owns a child's savings?
H1099 is explaining that in a situation where a parent is named on a child's bank account, if the money that has been paid into the bank account came from somewhere other than the parent's own income or savings (e.g. gifts from other family members, or earnings from the child's work), then it is not beneficially owned by the parent, even though they are the legal owner.
The £16,000 capital limit applies to savings, investments, lump sums, real property (i.e. land or buildings) or other similar things which are beneficially owned by the claimant. So money that's in the claimant's bank account but held on trust for someone else is not the claimant's capital, but money that is in someone else's bank account and held on trust for the claimant is.
Can parents claiming Universal Credit give their children gifts of money?
If it looks as though a claimant has given money away to someone else specifically to avoid hitting the £16,000 threshold, or to prevent deductions from their Universal Credit because their capital is over £6,000, then the DWP will apply the concept of notional capital, and treat the claimant as though they still had the money.
Putting a child's savings into a JISA is the most straightforward way of proving that it doesn't belong to you, the claimant, because once money has been paid into the JISA, only the child (when they turn 18) is able to access that money. It's very clearly held on trust for the child. It isn't the only way to prove that capital is held on trust though; any savings account specifically for a young child is opened on the basis that the money in the account is in trust for that child. Some of the factors that will provide evidence in favour of the money being the child's, and not the adult claimant's, capital include:
- The money came from someone other than the parent, e.g. grandparents
- Money has only ever been removed from the account for the child's use
- Everyone involved (parent, child, and bank) views the money as belonging to the child
Factors that might be used by the DWP to argue that the capital does actually belong to the claimant could include:
- Payments into the account came from the parent's capital or income
- Money has been "borrowed" from the account by the claimant
- The claimant has used the account for spending they would typically be responsible for
These factors don't necessarily mean that the capital will be found to belong to the claimant - in a legal case in 2015, a claimant borrowing from her daughters' accounts to pay off rent arrears didn't convert the contents of that account into the claimant's capital; it was still seen as being held on trust for the daughters.
How can you avoid having children's savings counted as capital?
Without the clear-cut certainty of putting money into a JISA, it can come down to an argument between the claimant and the decision maker as to who owns the capital, but it is not the case that if the balance is below £3,000 then it's always seen as the child's, or that more than £3,000 will always be seen as the claimant's. Unfortunately, if the decision maker feels that the evidence supports classing the capital as belonging to the claimant, then the only way to counter that would be to appeal and take the question to court.
It's helpful when trying to prove something in court to have written evidence of what you're claiming. This doesn't have to be a legal document - even something like a text message from a family member asking a parent to pay a monetary gift into the child's account or a cheque written in the child's name and sent in a birthday card might be good enough proof. The clearer you can make it that the money belongs and has always belonged to the child, the less likely you'll have to argue that point in court! So from a practical perspective, Martin Lewis may be right in some respects: put money in a JISA as a first choice, and a child's savings account as a second choice. For any other arrangement, be ready to prove it.