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Housing Benefit overpayment due to capital held in a fixed term Maturity Bond
Hello all
I have a case on which I would like advice/opinions on please.
I have a client who made a claim for Housing Benefit (and Council Tax Benefit) on April 2011 due to relationship breakdown meaning her ex-partner left the family home and left her with little income and a child to look after. She was awarded these benefits and continued to claim these throughout the years up until current day. She maintained a self-employed business with a low profit, and claimed Tax Credits to also supplement her income.
In December 2016, she received a letter from the Local Authority requesting further evidence of a particular account number, which she did not recognise. However, upon investigating with her bank, it transpired she had two Maturity Bond accounts, with a total value of £25k, therefore over the upper limit of £16k. Evidence showed she had this capital before she made the claim in April 2011, so her entire claim from that date was cancelled. Cue HB overpayment of nearly £25k, plus £4k backdated Council Tax bill and a bit of overpaid DHP too.
Clearly an overpayment on this claim exists, but I am looking to assist my client with perhaps at least reducing the value of the overpayment by way of an appeal.
At the point of making the claim for HB in April 2011, she had £17k in a Maturity Bond which she took out in April 2010 for a fixed-term period of 18 months. The Maturity Bond states that there is no right of early withdrawal, except in the event of her death or declaration of bankruptcy. It also states that she may not transfer the bond to anyone else nor may she use it as security for borrowing. Therefore, I feel that I can argue that the value of this bond should be NIL at the start of her claim because she had no way of realising its value. I do not believe notional capital rules come in to play (at least at this stage… read on), because she took out the bond a year before when she had no expectation of needing to make a benefit claim a year later due to relationship breakdown.
In April 2011 she also had just under £8k held in an ISA, which she says is where the current second Maturity Bond valued at £6.4k came from. She says that she held this money on account for her daughter, and this was given to her by her terminally ill mother-in-law (the daughter’s paternal grandmother) to give to the daughter when she came of age. The daughter is at present day aged 17, and my client states she intends to give it to her daughter no earlier than when she turns 21. She was quite clear that the intention of this money was always that it was for her daughter to benefit from, and that even now she will not consider using it in anyway when it becomes available to her. This doesn’t explain how the value of this account reduced, which I will need her to explain, but just suppose she can prove that she spent this on things her daughter needed.
Unfortunately there is no documentation of this trust agreement, but there appears to be case law to support that there doesn’t need to be as long as we can convince the Decision Maker that the money was always intended for its stated purpose and my client had relinquished any thoughts of using it elsewise. So for the sake of this post, lets assume this is agreed with and that the value of it is disregarded.
However, the Maturity Bond in question matured in October 2011, so she could in theory have withdrawn it at this stage, reported this to Local Authority to cancel her HB claim and lived off this capital until such time as her capital reduced below £16k so she could reclaim. When asked why she didn’t do this, my client stated that she hadn’t understood that the bond was for a fixed period of time, thinking instead it was an undefined longer period of time, and when she received letters from her bank about the bond, she disposed of them without reading them thinking they were statements of an account she had no intention and no understood ability of accessing. In fact, these letters were likely inviting her to withdraw the bond or it would renew in a fresh bond, which appears to be what has happened, probably repeatedly.
My question is therefore this: Do you think there is any scope to argue that she deprived herself of this Maturity Bond in October 2011, and therefore actually take advantage of the Diminishing Notional Capital rules. I am thinking this would work by treating her as having deprived herself of this capital by assenting to it being invested in the Maturity Bond. This would then force the Local Authority to use the Diminishing Notional Capital rules to reduce the notional value of the bond by the amount of Housing Benefit she has lost per week, until such time as the value is reduced (reviewed every 26 weeks?). At the point of first review, I believe that, if the other capital is disregarded for the reasons stated above, her capital would quickly reduce below £16k, and therefore allow her to actually have an entitlement fairly quickly again, thereby significantly reducing the resulting overpayment.
Of course, when the Maturity Bond taken out in October 2011 automatically renewed at its maturity date (and I don’t yet have the information to know when this was but seeking it), the value of it would presumably have to be reset, and then her to be treated as having again deprived capital, and the Diminishing Notional Capital rules start again.
Am I barking up a daft silly tree, or does anyone think there may be traction in this thinking to reduce the value of the overpayment?
There is a more obvious way to reduce the overpayment: diminishing actual capital (HB Reg 103). As a rule of thumb, if the amount of the “raw” overpayment is greater than the total capital minus £16,000, diminishing capital will make a difference. In this case the total capital in the claimant’s possession (subject to arguments about trusts and non-redeemable maturity bonds) from time to time has never been more than around £25,000-ish, so take away £16,000 from that and you are left with about £9,000. It is impossible - impossible - for there to be a £25,000 overpayment attributable only to this capital. Clearly the Council has not done a Reg 103 diminishing capital calculation, which they must.
This buys you some extra time to assemble evidence about the other matters. A trust without any paperwork presents the claimant with an evidential burden, which will be even heavier if as you suspect her behaviour prior to the bond commencing was not entirely consistent with the existence of a trust. And as for the no-access bond ... I have heard of bonds with early redemption penalties but never one that actually forbids you from withdrawing your money early. I think the Council will want to see strong documentary evidence of that but if it stacks up I agree with you that a nil valuation prior to maturity is strongly arguable.
Barclays have savings bonds with exactly those terms: non transferable, can’t be used as security for a loan, you can only withdraw it early by dying or going bankrupt.
There is a more obvious way to reduce the overpayment: diminishing actual capital (HB Reg 103). As a rule of thumb, if the amount of the “raw” overpayment is greater than the total capital minus £16,000, diminishing capital will make a difference. In this case the total capital in the claimant’s possession (subject to arguments about trusts and non-redeemable maturity bonds) from time to time has never been more than around £25,000-ish, so take away £16,000 from that and you are left with about £9,000. It is impossible - impossible - for there to be a £25,000 overpayment attributable only to this capital. Clearly the Council has not done a Reg 103 diminishing capital calculation, which they must.
This buys you some extra time to assemble evidence about the other matters. A trust without any paperwork presents the claimant with an evidential burden, which will be even heavier if as you suspect her behaviour prior to the bond commencing was not entirely consistent with the existence of a trust. And as for the no-access bond ... I have heard of bonds with early redemption penalties but never one that actually forbids you from withdrawing your money early. I think the Council will want to see strong documentary evidence of that but if it stacks up I agree with you that a nil valuation prior to maturity is strongly arguable.
Thank you HB Anorak, I completely missed that bit of legislation and you’re right, this would significantly reduce the overpayment to the same effect as I am trying to achieve by my thinking. I haven’t yet seen the decision letter confirming how the overpayment has been calculated so I cannot be sure they haven’t applied this rule, but it certainly doesn’t sound like they have from the value of the overpayment.
I think this might be my answer, but any further comments are welcomed!
Barclays have savings bonds with exactly those terms: non transferable, can’t be used as security for a loan, you can only withdraw it early by dying or going bankrupt.
And indeed, the paperwork I have pertaining the bond confirms these terms, so I am confident of this point.
However it may still be possible to borrow money against the value of the Bond. There are (were?) specialist companies who will consider such loans (not the High St types). Whether such a lender would consider your clients situation and make a loan may depend very much on the state of the market at the relevant time as it is a very speculative business.
I have had similar cases in the distant past. If memory serves there is even case law on the valuation of this type of Bond based on the potential to raise a loan against it. Given the speculative nature of such a potential loan the amount it may be possible to raise could be substantially less that the capital invested in the Bond (or nil if there is no current market) and the interest charge could be considerable!
However it may still be possible to borrow money against the value of the Bond. There are (were?) specialist companies who will consider such loans (not the High St types). Whether such a lender would consider your clients situation and make a loan may depend very much on the state of the market at the relevant time as it is a very speculative business.
I have had similar cases in the distant past. If memory serves there is even case law on the valuation of this type of Bond based on the potential to raise a loan against it. Given the speculative nature of such a potential loan the amount it may be possible to raise could be substantially less that the capital invested in the Bond (or nil if there is no current market) and the interest charge could be considerable!
The terms of the bond does specifically state that it cannot be used as security for borrowing. I don’t therefore see how the Local Authority could reasonably argue that my client could nevertheless secure borrowing against it - if there was some way of doing this illegitimately, it should not be expected that someone should do that.
Does this case law you mention support or dispute my point of view? Does anyone know where I might find this case law?
see CPAG p p 342 ‘fixed term investments’ (and p351 - ‘the right to receive payment in the future’ may also be relevant). The terms of the Bond may not allow it to be used as security (a secured loan like a mortgage) however, it may still be possible to raise an unsecured loan or to sell the bond for a lump sum. As I said earlier this may depend on whether there is any current market (a very volitile & specialist area). If there is a potential to raise a loan / sell the normal rules of valuation of capital would then apply.
sorry my cases were a very long time ago I can’t readily identify the caselaw (and may no longer apply due to subsequent changes in the regs).
see CPAG p p 342 ‘fixed term investments’ (and p351 - ‘the right to receive payment in the future’ may also be relevant). The terms of the Bond may not allow it to be used as security (a secured loan like a mortgage) however, it may still be possible to raise an unsecured loan or to sell the bond for a lump sum. As I said earlier this may depend on whether there is any current market (a very volitile & specialist area). If there is a potential to raise a loan / sell the normal rules of valuation of capital would then apply.
sorry my cases were a very long time ago I can’t readily identify the caselaw (and may no longer apply due to subsequent changes in the regs).
Okay thanks for your help Peter.
Not arguing against the substance of what you’ve said Peter - but wouldn’t it be nigh on impossible to fix a historic value at this point? Yes, I can see how that exercise could be conducted to fix a current market value for a fixed term investment currently held - but I find it difficult to to believe that one of these specialist companies would now commit to stating a) they would have definitely bought it/lent against it in 2011 and b) what the sale price/loan would have been?
I suppose what I’m saying is is that if the market is that volatile, even a current valuation is no real indication of whether one of these firms would have been prepared to buy/lend against the investment six years ago…..
Not arguing against the substance of what you’ve said Peter - but wouldn’t it be nigh on impossible to fix a historic value at this point? Yes, I can see how that exercise could be conducted to fix a current market value for a fixed term investment currently held - but I find it difficult to to believe that one of these specialist companies would now commit to stating a) they would have definitely bought it/lent against it in 2011 and b) what the sale price/loan would have been?
I suppose what I’m saying is is that if the market is that volatile, even a current valuation is no real indication of whether one of these firms would have been prepared to buy/lend against the investment six years ago…..
I agree - but that’s the nature of this particular beast (case)! But that might also be the case, for example, where there is an issue about valuing an (undeclared) property abroad at a date many moons ago.
The terms of the Bond may not allow it to be used as security (a secured loan like a mortgage) however, it may still be possible to raise an unsecured loan ....
If the loan is unsecured, and therefore unrelated to the bond, you would seem to be arguing that in ANY case you could take account of the possibility of loans or credit.
Looking at the second bond which holds ‘money on account for her daughter, and this was given to her by her terminally ill mother-in-law (the daughter’s paternal grandmother) to give to the daughter when she came of age.’
To create an express trust, you must satisfy what are known as the three certainties. There must be: A certainty of intention, in that the words used must demonstrate an intention to create the trust; A certainty of the subject in that the property comprising the capital of the trust and the interests of beneficiaries must be clear: A certainty of objects, in that the beneficiaries must be identifiable (Knight v Knight)
Taking those in order. It is well settled that you can create a trust without actually using the word trust, the question is whether sufficient intention to create the trust has been manifested (Re Kayford). It is necessary that the settlor of the trust uses ‘imperative words’ in order to demonstrate an obligation under a trust, rather than precatory words which only create a discretionary power. An example of attempting to create a trust but failing is Re Adams and the Kensington Vestry where the terms of a will stated
‘I give devise and bequeath all my real and personal estate .. to my wife .. in the full confidence that she will do what is right as to the disposal thereof between my children, either in her lifetime, or by her will after her decease’.
The court held that the widow took the property absolutely and there was no trust.
In this case there was at least a trust instrument indicating an intention (notwithstanding that the intention was found lacking). Your client doesn’t have the benefit of any sort of document, and she says that she intends to give it to her daughter no earlier than when she turns 21 rather than 18, which is when of course she comes of age. This rather suggests that the settlor gave no real direction on the terms of the supposed trust or interest of the beneficiary, and that your client is setting terms by which the alleged trust operates. On the evidence, I don’t think that there is sufficient certainty to indicate the existence of an express trust for your client’s daughter.
This may not totally kill the argument though. There does not necessarily need to be any written evidence of a trust consisting of pure personality in respect of the operation of resulting, implied or constructive trusts (s.53(2) Law of Property Act 1925). If ‘A’ has transferred property to ‘B’ to create a trust and the exercise has failed and there is no trust to benefit ‘C’; is ‘B’ holding the property on resulting trust for the estate of ‘A’. You would of course need to show evidence that the transfer was made, and overcome the presumption that it wasn’t an outright gift
If a bond is not transferable then you can’t sell it (buyer can’t take ownership) and if it has provision that it can’t be used security for a loan then you can’t borrow against it. It therefore really doesn’t have a market value until the date it matures - you just can’t market the thing. I would agree with the advice to look at the terms carefully because “I cant cash it” usually means “there is an unpalatable financial penalty if I cash it” but it isn’t always.
Got to say as an independent I found a lot of these arguments very tenuous. The facts seem to be that the claimant had over 16K in capital which she did not declare for many years and presumably she signed various claim and review forms without mentioning the accounts at all? Applied for a DHP payment and completed and signed those forms? The monies were discovered by a data match? Clearly the calculation o f the net overpayment may well be incorrect and can be reduced significantly.
Am minded of a Tribunal involving undeclared capital where the rep rather got the Tribunal Judge’s back up by trying to argue some “blue sky thinking” and the latter pointedly asked me whether a “criminal prosecution” would be taking place following the hearing. Ouch.
I might have misunderstood what you mean Peter but if the suggestion is that working out whether the capital has a market value and whether the client can legally spend the money which appears to be held on trust or not is some kind of wheeze then I think you are wrong. If you hold capital as a trustee then spend it on yourself you will be in bother – it isn’t yours. If you have a bond that is non transferable and cannot be used as security then you won’t be able to fall back on it if you fall on hard times before maturity. The bank will tell you it is tough luck / a bad investment decision. You might complain that “it is my money” but actually it isn’t – you swapped the money for the right to receive more money in the future. Trying to sell it when you have no right to or raising a loan against it when you have no right to could get you into bother.