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Is CGT on goodwill treated as income for Tax Credi

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Hello

looking for some help - is capital gains on goodwill treated as income for Child Tax Credits and Working Tax Credits - its not something I have done before and was just looking for some help.

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By Duggimon
14th Jun 2021 09:55

Capital gains aren't income, they're capital gains.

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By paul.benny
14th Jun 2021 10:23

Child tax credit and working tax credit aren't tax either.

The benefits system has an approach to terminology seemingly inspired by Humpty Dumpty.

I don't think your gains will be treated as income for benefits purposes but to have a gain on goodwill you must have sold a business. It's the total sum received that may disqualify you from tax credits.

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By SXGuy
14th Jun 2021 11:07

It really depends
As others have mentioned, even though CGT is not income, Tax credits will treat pretty much any cash you receive as income.

You may have a situation whereby you have for example, incorporated and transferred a business, generated Goodwill, and pay CGT on it, but you might not have physically taken the cash equivalent from the business, it may just be sitting there waiting to draw down on it, or it may not even be available to take.

In that respect, even though you have paid CGT you haven't actually taken the money.

My advice to you, would be to treat goodwill for tax credits as, as and when you receive the funds from the goodwill, and declare that as part of your income.

If however, you have received all that was due as a result of goodwill, the yes of course, it will be treated as income by tax credits.

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Replying to SXGuy:
By Duggimon
14th Jun 2021 11:21

SXGuy wrote:

My advice to you, would be to treat goodwill for tax credits as, as and when you receive the funds from the goodwill, and declare that as part of your income.

If however, you have received all that was due as a result of goodwill, the yes of course, it will be treated as income by tax credits.

This is definitely wrong, it's not income.

Perhaps you'd care to have a wee look here and see which regulation you think it is that a capital receipt not chargeable to income tax might fall under?

https://revenuebenefits.org.uk/pdf/2002_2006_original.pdf

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Replying to Duggimon:
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By SXGuy
14th Jun 2021 12:42

So if you were in receipt of working tax credits and you received a goodwill payout of 30k are you telling me tax credits would not treat it as income and it would not affect your entitlement?

I find that very odd. And for the avoidance of doubt,i didn't say cgt was income, I said tax credits would treat it as income.

I of course will stand corrected if I am wrong, I don't mind admitting when I am, but I find it hard to believe that you could receive a substantial amount of money and it not be assessed.

With regards to UC I have no idea if the treatment is the same. But knowing that your entitlement is removed if you have savings above a certain level, the fact that you'd receive more than that level through a capital gain again seems off to me that they would not assess you based on receiving that amount.

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Replying to SXGuy:
By Duggimon
14th Jun 2021 12:45

Yes, that is what I am telling you, provided by "goodwill payout" you mean the sale of a capital asset of some description and not anything that might be considered trading or investment income.

Anything chargeable to CGT is by definition excluded from the income calculation in assessing WTC/CTC.

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By Hugo Fair
14th Jun 2021 11:39

"is capital gains on goodwill treated as income for Child Tax Credits and Working Tax Credits?" ... makes no sense as it stands, as a capital gain in itself hasn't delivered any money to you (whether as income or not).
Assuming therefore that you mean the realisation of a capital gain (resulting in you receiving money), then the answer is NO (it is not treated as income for UCs).

As with most benefits, there are two wholly separate aspects you need to consider - eligibility for the benefit, and how much you can claim (if eligible in the first place).

For UCs - see https://www.gov.uk/universal-credit/eligibility :
* eligibility includes a 'means-tested' element (in other words if you have access to liquid capital, aka savings, of more than £16,000 then you're not eligible at all);
* if eligible, how much Universal Credit you can get will depend on your earnings (either from employment or self-employment).
The detailed rules are fairly complex, but realisation of a capital gain is not treated as earnings any more than than would be selling your old car.

I'm no expert in Child Tax Credits and Working Tax Credits (I only deal in Universal Credits), but I'm sure you can find equivalent guidance for them on GOV.UK

EDIT: crossed with Duggimon, with whom I totally agree.

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Replying to Hugo Fair:
By Duggimon
14th Jun 2021 12:40

I think, unlike UC, there is no means testing applied to savings when determining eligibility for WTC/CTC, however I'm not 100% certain on that. I am definitely certain that a capital gain has no bearing on the assessed income for the year though!

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Replying to Duggimon:
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By Hugo Fair
14th Jun 2021 13:33

I focussed on UC instead of OP's WTC/CTC simply because its easier to find the 'rules' for it, as WTC/CTC are now 'dinosaurs' (or at least marked for extinction).
Indeed they are very difficult to start anew now:
https://www.gov.uk/working-tax-credit ... "You can only make a claim for Working Tax Credit if you already get Child Tax Credit"; and
https://www.gov.uk/child-tax-credit/new-claim ... "You can only make a claim for Child Tax Credit if you already get Working Tax Credit"!
[Gives new meaning to the Lottery slogan of "you've got to be in it to win it"!]

Amongst the anomalies is that WTC is not means-tested so, when DWP finally get around to moving you off it onto UC (which is means-tested), your eligibility can drop off the cliff-face.
Even more confusingly, CTC is described as a means-tested benefit ... but this doesn't have any component related to capital/savings (just the income of your partner)!

However in terms of OP ... I concur that I can't see a context in which a capital gain would have any bearing on the assessed income for WTC or CTC!

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By carnmores
14th Jun 2021 12:24

i'm more interested in this so called 'goodwill gain', approx how much is it and how did it arise

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By Willow01
15th Jun 2021 12:54

Okay, it is goodwill from sole trader company that is now going limited - They will not have the actual money in their bank account as it will be in the director's loan account - sorry should have said that at the start.

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Replying to Willow01:
By Duggimon
15th Jun 2021 13:02

This seems a bit mad, was it worth incorporating a business that makes so little profit that a WTC/CTC claim is possible?

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Replying to Duggimon:
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By Willow01
15th Jun 2021 13:28

Yeah, without going into all the ins and outs of it all - yes it was worth it for many many reasons - you must now that not everything is always black and white.

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By S Gill
15th Jun 2021 13:04

For WTC CTC purposes income is adjusted net income (salary + bik - pension - gift aid)- if your client is self employed then income is self employed profits that go on a tax return.
Other income such as interest is included but the first £300 is disregarded
Unlike Universal Credit where capital is considered, WTC/CTC is income only.
Check out the tax credits manual

https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

Also tell your client to disclose at renewal.

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By Willow01
18th Jun 2021 11:27

Thank you so much for all your replies it is much appreciated.

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