How To Guide On Universal Credit
For nearly 6 million residents of the UK, Universal Credit is a veritable lifesaver when it comes to making ends meet. This payment enables those who are of low income, out of work and/or unable to work to receive monthly payment (twice monthly in Scotland) to help cover costs associated with housing and children/ child care, as well as support for those with disabilities and/or those who are too ill to work.
For renters, Universal Credit can help them pay their landlords promptly. For parents, it means being able to be at work and having access to childcare financing. For those who require care or care for a family member, it can mean funding that allows for some ‘breathing room’ against the stress, worries and responsibilities you face.
But what does it mean for those who are hoping to purchase a home? How does Universal Credit affect your chances of getting a mortgage? How does it affect your credit score and rating? How will it affect stamp duty? How much is the stamp, and can I afford it? As you go through the sales process (even if just the initial stages of planning – and hoping), these are important questions to ask. Finding answers is critical. This is why we are here.
In this guide, we will explain:
- What Universal Credit Is
- Who is Eligible for Universal Credit
- What Benefits You Can Receive – As Well as How and When They Are Paid
- How Universal Credit Impacts Your Homeownership Goals
- What You Can Expect In Terms of Stamp Duty UK and FAQs
- Where You Can Access Financial Advice
That said, let’s work on finding you the answers you need to proceed with greater confidence – and ultimately, better results.
What Is Universal Credit?
As explained, Universal Credit is a payment intended to help people with living costs. It is worth mentioning that this payment replaces many tax credits and benefits that were previously available, including housing benefits, child tax credits, income support, working tax credit, income-based jobseeker allowance, income-related employment and support allowance.
According to the Department for Work and Pensions (DWP), these are ‘legacy benefits.’ That is, you cannot make a new claim to receive them. You will have to apply for Universal Credit if you require additional support. For those on one or more of the benefits we mentioned above, as long as nothing changes in your life (e.g. wages, job status), you will receive them until the DWP asks that you move to Universal Credit.
Who Is Eligible For Universal Credit?
To meet the eligibility criteria for Universal Credit, you must:
- Be 18 years of age or older (though in some instances, those aged 16 or 17 may qualify)
- Be below State Pension age (currently 66 years of age, but will increase in 2026)
- Not be in full-time training or education (with some exceptions)
- Have savings of less than £16,000
If your savings amount to £6000 or more or if you earn enough income to cover basic living costs, you can receive Universal Credit though the amount will be reduced.
As mentioned, some people qualify for Universal Credit at age of 16 or 17 if they have a reduced capacity to work, have medical evidence and are waiting for your Work Capability Assessment, are a carer for a person with severe disabilities, are single and responsible for a child, are at least 29 weeks pregnant, have a partner with whom you share responsibility for a child and who is eligible for Universal Credit, have had a child in the last 15 weeks or if they do not have parental support but are not under local authority care.
If you are in education or training, you may qualify if your partner is eligible for Universal Credit, if you are part of a couple responsible for a child, are single and responsible for a child, if you are over the Pension Credit qualifying age but your partner is not if you are under 21 in full-time non-advanced education and do not have parental support, you’ve been assessed with Limited Capability for Work or Limited Capability for Work and Work-Related Activity etc.
As with any government scheme, there are endless nuances and exceptions to every rule. It’s best to check eligibility criteria or contact Universal Credit through your online account or by calling the helpline on 0800 328 5644. Alternative numbers to reach assistance:
- Textphone: 0800 328 1344
- Relay UK: 18001 then 0800 328 5644
- British Sign Language: use video relay service
- Welsh Language: 0800 328 1744
Assistance is available Monday to Friday from 8:00 am to 6:00 pm. You may access your online account any time you wish.
Your Responsibilities Under Universal Credit
When you receive this benefit, you do have certain rights and responsibilities. For example, you must inform the Department for Work and Pensions about any ‘change in circumstance.’ This includes finding a job, leaving a job, changing your address, falling ill or experiencing other changes in your health, changing your banking details, increases or decreases in rent, a partner leaving or joining the home in which you live and for which you pay rent. This list is not exhaustive by any means; if something does shift in your life, contact Universal Credit to see if you need to report it. If so, you are ahead of the game. If not, all you’ve done is spent a few minutes asking a question. No harm done!
There are some other obligations of which you need to be aware. To receive this credit, you will often need to prepare for or move into work. You may be assigned a work coach to help you do this. If you can look for work or move into work, then you must also attend appointments with your coach via phone, video call or in person. Essentially looking for or preparing for work becomes your full-time job!
If you experience health (including mental health) conditions that limit or restrict your capability for work, the Department for Work and Pensions will help you access the best support for your needs. You may, for example, be required to do work search or preparation activities that are ‘reasonable’ given your condition.
Of course, life happens and sometimes we cannot devote a significant amount of time to these activities. This may be true if you are dealing with childcare responsibilities, are a victim of domestic abuse, are homeless, are in a period of bereavement, have caring responsibilities, are leaving care or if you are in a structured treatment program for drug and/or alcohol misuse.
If you are not sure how your situation may impact your responsibilities, please visit the Universal Credit Easements page at gov. The UK.
If you fail to meet your responsibilities, your Universal Credit payments could be reduced or stopped.
How Much Are Universal Credit Payments?
Now for the big question when it comes to Universal Credit: how much is it? That is, what can you expect in terms of payment? This is a basic allowance that, as mentioned, covers costs associated with housing, child care, caring, sickness and disability. The amount that you specifically will receive depends on a few different factors, including income from a job, pension, other benefits and savings of over £6000.
That said, payments are generally as follows:
- £265.31 for single claimants under 25 years of age
- £334.91 for single claimants 25 years of age or older
- £416.45 for joint claimants who are both under the age of 25
- £525.72 for joint claimants with either or both over age 25
In England, Wales and Scotland, this is paid monthly. In Scotland, you can request fortnightly payments. Finally, in Northern Ireland, the standard is every fortnight but you can request monthly allotments instead if you choose.
When it comes to Universal Credit, the question “How much will I take home?” is important. Again, be aware that your specific payment may differ based on previously covered factors.
Another important question to answer is “How much tax will I pay?” It is essential that you learn how Universal Credit may impact other areas of your finances. The good news is that these payments are non-taxable; in other words, you do not have to report this as income when you do your tax return. How does this benefit affect other financial situations? Let’s explore.
How Universal Credit Impacts Your Homeownership Goals
Nearly 6 million people in the UK access Universal Credit, and these payments can be incredibly helpful in covering basic costs – and alleviating some of the immense stress that so often accompanies low income. At the same time, you may be wondering how they will affect other areas of your financial life, particularly if you are considering buying land in the UK or a new home.
Not only do you have to consider the cost of the land or house itself, but the attendant expenses you will face; this may include stamp duty on property. How much is this? But before we get ahead of ourselves, let’s go back: does Universal Credit impact the process of buying land in the UK?
First, let’s look at credit scores and ratings. Your credit rating is a look at your financial history and how you have handled debt. You are given a score, which allows lenders to make a virtually at-a-glance assessment as to whether you are a ‘good’ risk or a ‘bad’ risk in terms of borrowing money.
If your report shows missing payments or late payments, it lowers your score. You are seen as a poor risk for loans, including mortgages and credit cards. Because your credit report looks at your borrowing history (including debts and repayment history), your Universal Credit payments will not appear in your report or affect your rating.
That said, there are a lot of factors that will lower your credit score, and this is important to keep in mind if your goal is homeownership. Detrimental to your credit is:
- Many credit applications. When you apply for multiple loans and/or credit cards, it all but screams ‘I’m desperate!’ It is a big red flag for lenders.
- Being close to or at your credit limit. Say you have a credit card with a £10,000 limit. If you’re at £9900, lenders see this as a sign of current or impending financial difficulty.
- Missing or late payments. This tells lenders that you cannot reliably pay your debts. If you fail to pay altogether, it is recorded as a default and will stay on your report for up to six years, dragging down your score.
- Over-borrowing. If you have had to get a Debt Relief Order or Individual Voluntary Arrangement because you could not pay off your debts, it will remain on your report for up to six years.
- Court judgements and/or bankruptcy. If a court judgment has been filed against you or if you have had to declare bankruptcy, it seriously impacts your rating and ability to borrow.
Now, what about mortgage applications? Does Universal Credit impact these? Again, your payments will not appear on your credit report. However, that does not necessarily mean that it won’t impact your ability to secure a mortgage. This is because lenders look at both your debts and your income to determine if you are a good candidate to repay the loan. If you receive Universal Credit, you likely have a lower income. This may make it challenging to meet affordability tests from lenders.
It’s not the credit itself – it’s the fact that you are likely in a financial situation which makes it necessary that can keep you from getting a mortgage. Before you apply for a mortgage – which will show up on your credit report – make sure to check the lender’s eligibility requirements. Universal Credit may affect your goal of buying land in the UK for this reason.
Before you start worrying about deposits and stamp duty rates, back up to enquire whether you can get a mortgage. Yes, it is possible when you are on Universal Credit. But other factors play a role in lenders’ decisions. They look at the full picture to assess your position as a potential borrower.
- Dependency on your Universal Credit payment. If your income is mostly or solely down to Universal Credit, lenders will wonder if you can repay a mortgage.
- Other forms of income and other assets. Having additional sources of income or assets (e.g. bank accounts, savings, etc.) will support your application and make it more likely you will be approved. Keep in mind that these same factors will affect your Universal Credit payment amounts.
- Your deposit. If you have saved for a deposit and have 20% or more, it will be a positive for you when applying for a mortgage. You will likely find it more difficult if you have only 5% to 10% saved.
- Other benefits. If you work with lenders that include income from benefits, it will be helpful to you to claim these when applying.
- The type of mortgage. Some mortgages may be easier to attain and some lenders do not have minimum income criteria. For example, a buy-to-let may be your best option.
As you can see, there is a bit of a catch-22 situation here. The more you earn and save, the better your odds of getting a mortgage. But the more you earn and save, the lower your Universal Credit payment amount. This can be a difficult balance to achieve, and you will certainly need to assess your goals and how best you can meet them.
To boost your chances of securing a mortgage while on Universal Credit, it is important to make progress on the following steps:
- Make it a priority to start saving for a higher deposit.
- Figure in Additional Costs. Again, the cost of buying is not the only expense you will encounter. Look at factors like tax when buying a house to get the full picture of your financial obligations should you proceed with this goal.
- Check lenders’ eligibility criteria before submitting a mortgage to minimise the impact on your credit report.
- Provide evidence you can repay a mortgage reliably. The best way to do this is to prioritise repaying your current debts reliably.
- Reduce debt. This is easier said than done to be sure. It is also one of the most important steps you can take if you want to purchase a house. Try one of the following techniques:
- Debt Snowball. This is a debt reduction method by which you pay off debts from smallest to largest. As you pay off each one, you gain momentum. When you pay off the smallest debt, you apply the minimum payment you were making on that to the next smallest debt on your list.
Start by listing your debts from lowest to highest, disregarding interest rates. Make minimum payments on all debts except the smallest. Pay as much as possible towards that smallest one. When that is paid, take that minimum payment and add it to the minimum payment for the next smallest debt. It ‘snowballs’ into great results.
- Debt Avalanche. This method of debt reduction is similar to the snowball. Instead, though, you pay the minimum amounts on all debts and focus more energy on the debt with the highest interest rate (even if it is not the smallest).
Once that is paid off, apply that payment towards the debt with the next highest interest rate. Continue. The theory here is that you’ll knock out the debts that have the most chances of spiralling out of control via interest first, saving money in the mid-to-long term.
The method you choose is up to you; some people like attacking high-interest rates first so those debts do not grow. Others like the feeling of accomplishment and momentum they gain when they start ticking debts off their lists. Regardless, focus on this and keep up the good work. You’ll start to see gains – and you’ll start to position yourself more favourably when it comes to getting a mortgage.
While you are planning, it will be helpful to use the cost of buying a house calculator. Some options to try:
- Moving Costs Calculator
- Bankrate Mortgage Calculator (to determine how much you can borrow)
- Bankrate First-Time Buyers Stamp Duty Calculator
- MoneyHelper Cost of Stamp Duty Calculator
By the same token, it is important to check property value to determine if you can afford to be house hunting in a particular area or for a specific type of property – and to determine if you can pay stamp duty fees, if necessary. You can use Zoopla, Nationwide.co.uk, PropertyPriceAdvice.co.uk, landc.co.uk and other online resources, as well as HM Land Registry.
What You Can Expect In Terms of Stamp Duty UK
When you are planning to purchase a house, one of the costs you will face (perhaps!) is stamp duty. If you have done the work to secure a mortgage even when on Universal Credit… good for you! But it is important to understand this additional facet of the process. That said, what is stamp duty?
UK stamp duty is a tax that is paid when buying a residential property or piece of land in England or Northern Ireland. The good news is that if your home costs less than £125,000 (currently) and/or you qualify for relief as a first-time buyer, you do not have to pay stamp duty. In the case of first-time buyers, you do not have to pay unless your property costs more than £300,000, and there is a discounted stamp duty on houses costing up to £500,000.
What about stamp duty in Scotland and Wales? You will be responsible for Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT) respectively. Where does the stamp go? These revenues are used to fund government programs and activities.
So, in terms of the question ‘how much stamp duty will I pay?’, the answer may well be ‘nothing’! That’s certainly positive news, especially if financial struggles have been part of your history. But let’s say that you may have to pay. We will now cover some stamp duty FAQs.
HMRC Calculator SDLT
As we will cover momentarily, SDLT is ‘stamp duty land tax.’ Using an HMRC SDLT calculator is a good way to get an idea of what you may need to pay. There are various options online that you can use to figure out these sums. And, again as we will discuss, there are exemptions to this tax for which you may meet the requirements.
Stamp Duty UK FAQs
Here are some frequently asked questions – and the answers you need:
Q: What Is Stamp Duty UK?
A: As explained this is a tax that is collected when someone purchases a residential property or piece of land in the UK. Revenues help fuel government programs, so it is an important form of funding.
Q: Who Pays Stamp Duty?
A: As discussed, people who purchase homes with values that exceed the £125,000 limit (or £300,000 for first-time home buyers) will have to pay stamp duty. As well, if you are purchasing a second home or if you are a non-resident, you will likely need to pay stamp duty.
Q: When Do You Pay Stamp Duty?
A: If you do have stamp duty to pay, you will have 14 days from the date that you complete your purchase.
Q: How to Pay Stamp Duty?
A: Typically, your conveyancer or solicitor will calculate your stamp duty costs and pay the bill on your behalf. They file a return with HM Revenue & Customs (HMRC) for you with the correct payment.
Q: How Much Is Stamp Duty?
A: It depends. It is important to know that there are different stamp duty bands. Your tax is figured out based on the part of the purchase price that falls within each band. Let’s look at an example so it makes more sense. Your purchase a house for £350,000. To calculate stamp duty in the UK, be aware of the following numbers. You will pay 0% on the first £125,000; 2% from £125,001 to £250,000 (or £2500) and 5% from £250,001 to £350,000 (or £5000). Thus, your total stamp duty cost is £7500.
Q: How Often Do You Pay Stamp Duty Tax?
A: Unlike some other forms of tax, you only pay stamp duty once, upon the purchase of your property.
Q: Does Stamp Duty on Houses Depend on Value?
A: While conducting a property value check is an essential part of the home buying process – as well as critical information to know if you should need to remortgage, apply for a loan or sell up – value does not necessarily play a role in UK stamp duty rates. Or at least it’s indirect. Instead, your stamp duty rate will depend on the price for which you purchase the property. (Of course, this is highly dictated by property value – but it may not be an exact apples-to-apples situation.)
Q: Do Stamp Duty Rates Change Often?
A: You may recall that stamp duty 2021 saw some changes. For example, those who purchased a residential property between July 8, 2020, to June 30, 2021, were given a little break when paying stamp duty on the house. They only had to start paying SDLT (stamp duty land tax) for properties purchased of more than £500,000. This was true for first-time buyers as well as those who have purchased a home before. This was a temporary increase in the stamp duty in the rate band.
That aside, stamp duty rates in the UK remain stable and will not change in 2022.
Q: What Is the ‘Nil’ Band – and What Does It Have to Do With Pay Stamp Duty?
A: As mentioned just previously, there was a temporary increase in the stamp duty nil band. But what does this mean? The nil band is the purchase price at which home buyers do not have stamp duty.
Calculating rates in the band is easy! Just check the current nil band for the latest information and to see if you meet the stamp duty threshold. Remember, if under that and if you are not a first-time buyer, you do not have to worry about a stamp duty payment.
Q: What is the Stamp Duty Threshold UK?
A: As discussed, stamp duty thresholds are essentially the level at which you do not have to pay this tax. Currently, this stands at £125,000 for those who have purchased a home before and up to £300,000 for first-time homebuyers. Again, though, there was a temporary increase in the nil band in 2020/2021 in terms of stamp duty for first-time buyers 2021 as well as those who had purchased a home before.
Q: When Was UK Stamp Duty Holiday?
A: It can be confusing to figure out house stamp duty and decipher all of the various terminologies. The stamp duty holiday in the UK was from July 8, 2020, to June 30, 2021, and from July 1, 2021, to September 30, 2021, inclusive.
Q: Do I qualify for Stamp Duty Exemption?
A: You just may! When it comes to stamp duty England rates, for example, you may find yourself freed from that tax if you are under the stamp duty threshold. As you know, this means you purchased your house for £125,000 or less. There are other instances in which you can avoid the stamp duty cost:
- You did not exchange money or other payments for a property transfer
- You inherited the property
- The house is transferred to you because of divorce or the dissolution of a civil partnership
- You purchase a freehold property for less than £40,000
- You use alternative financial arrangements to complete the purchase (e.g. you are complying with Sharia law)
- You purchase a new or assigned lease of seven years or more with a premium of less than £40,000 and an annual rent of less than £1000.
- You purchase a new or assigned lease of fewer than seven years and the amount is less than the residential threshold
Q: Can You Add Stamp Duty to the Mortgage?
A: Not as such, no. You may, however, ask your lender to increase the amount of your mortgage to cover current stamp duty rates. The problem with that is (a) they may refuse to extend your loan and (b) if they do, you will be paying interest on that amount over the life of your mortgage. In general, if you must pay stamp duty on buying a house, you will have to have that funding covered. You can reduce the amount of your deposit (which can increase your mortgage payments and make it harder to secure a good loan) or use those debt reduction strategies we discussed earlier in this guide to double down on saving.
Q: What Is SDLT Fee?
A: A rose by any other name… SDLT is stamp duty land tax – the topic we have been exploring. Just another acronym to add to your list!
Q: Do You Have to Pay Stamp Duty When You Sell a House?
A: When do you have to pay stamp duty? When you purchase a house. A while back rumours were running rampant that the old stamp duty model was going to be replaced; currently, buyers pay SDLT. There was widespread speculation that, in the quest for tax reform and more efficient systems, this onus would be either passed on to or shared by sellers.
Then-UK Chancellor of the Exchequer Sajid Javid took to Twitter to refute the rumours. He tweeted:
More speculation about stamp duty this morning. To be clear, I never said to @thetimes that I was planning to put it on sellers, and I wouldn’t support that. I know from @mhclg that we need bold measures on housing – but this isn’t one of them.”
So in short, sellers are off the hook for England stamp duty.
Q: Is Stamp Duty Still Free?
A: This is a common question. Stamp duty isn’t ‘free’ per se, though there are instances in which there are exemptions so buyers do not have to pay. Remember, this applies to homes purchased under the threshold (£125,000 currently) or for first-time buyers who purchase residential property for £300,000 or less. We have discussed other exemptions as well. So no, it’s not ‘free’ – but you may not have to pay for it.
Q: Is Stamp Duty In Scotland Different?
A: Good question. When asking ‘How much is stamp duty in the UK?’ It is important to recognise that stamp duty in Scotland is called ‘Land and Buildings Transaction Tax’ – or LBTT. It is based on the existing UK SDLT model. It is based on property price, and there are rate thresholds as well. Under the new LBTT system, buyers pay tax on different rate bands – as we discussed with the general UK SDLT. The rates, however, differ from those in the rest of the UK.
For example, people owe nothing if their purchase price was less than £145,000. And as follows:
- £145,000 – £250,000: 2%
- £250,000 – £325,000: 5%
- £325,000 – £750,000: 10%
- Over £750,000: 12%
For first-time buyers, no LBTT is due if the home was purchased for less than £175,000. You can find an LBTT calculator Scotland 2021 here to determine what, if anything, you are required to pay. You can also find a Scottish stamp duty calculator at Revenue Scotland.
Q: How Much Is Stamp Duty UK – and How Do I Figure It Out?
A: How much are stamps? You can get a sense of what you might pay based on generalities. For further assistance in planning, though, it is helpful to utilise a good HMRC stamp duty calculator.
You can find a reliable stamp duty calculator HMRC here.
How does stamp duty work? This is an important question to ask as you go into the house-buying process. Now that we have answered this in some detail, let’s look at ways that you can access financial advice. Whether you are a homeowner now on Universal Credit or hope to be a buyer shortly, it is vital that you have a solid understanding of your finances, your goals and of how you can best achieve them.
Q: Is There VAT on Stamp Duty?
A: When you’re trying to figure out how much stamp duty is, you may wonder if there is VAT involved. This is a ‘value-added tax and it applies to goods and services. Currently, this is 20% for most goods and services. Note: there is a 5% VAT on some goods and services like child car seats and home energy and 0% VAT on most food and children’s clothing. Some items, such as postage stamps, are exempt. So when you’re asking ‘How much is a stamp UK?’ the answer won’t include VAT! But when you’re asking ‘How much is UK stamp duty?’ … the answer is also that it won’t include VAT. Fortunately, stamp VA is not applied.
Where You Can Access Financial Advice
What is Universal Credit? How will it affect my credit? Can I still buy a home? If I do, how much is stamp duty? Finances are complex – and navigating the ins and outs can be challenging, particularly if you are dealing with income and debt struggles. Know that there is help out there and that you can utilise helpful resources to meet your goals. We suggest that you try:
In many cases, you can access free or low-cost financial advice and guidance. Trying to figure it out all alone may work for some – but for the rest of us, some impartial, solid advice from an expert may be the key to reaching our goals.
In this guide, we have covered a great deal of terrain, if you will, in terms of Universal Credit, how this benefit may impact your homeownership goals and what you need to know about – and prepare for – when it comes to what SDLT is, when is stamp duty payable, who pays, how much is a stamp and how you can use an SDLT calculator HMRC to figure it all out.
It is a lot to take in! Just remember that we have also given you plenty of resources and ideas to help you along your journey. From accessing more information to getting financial advice and guidance, you have the tools you need to move successfully toward the next steps with greater confidence.