Taxing house sale
Question
My partner and I have just finished our long-term relationship. My son lives with me and my daughter lives with my partner. My ex is keeping the house, and I am living with my parents until I find somewhere to live. I am on Incapacity Benefit and Disability Living Allowance, also Tax Credits and Child Benefit for my son. I should receive £20,000 settlement from the house and will put this toward a place of my own. How do I stop this all going to the taxman?
Answer
As the tax rules apply at the present time, you will not have to pay any tax on the sale of the house because it was your main residence. The real issue is the possible effect this money will have on your benefits.
There will be no effect on your Incapacity Benefit, Disability Living Allowance (DLA), or Child Benefit because these are based on your illness, your child and your National Insurance contributions. However, the money may have an influence on the amount of tax credit you get because this is a means tested benefit and capital (from the sale of the house) can generate income which might need to be taken into account, depending upon the amount and whether the income is excluded from consideration under tax credit rules.
If you find that you have a problem with the Tax Credit Department because of this capital we would suggest you contact your local Citizens Advice Bureau (CAB) and ask them to intervene on your behalf.
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Question answered by CAB
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