Capital deprivation following inheritance where used to buy house

Client is due to receive just over £100,000 in inheritance, currently receives PC, HB and CTR. Doesn’t want to lose these so she is considering using the money to buy a house or flat.

Would this be treated as deprivation? Can’t find much case law dealing with this specific issue. Her significant operative purpose is clearly and avowedly to spend the money to continue her entitlement to these benefits (as per R(SB)9/91).

Yet, in doing so, she will reduce the burden on the state by longer requiring HB payments to be made (R(IS)15/96 might apply here?).

Also considering a variation deed on the will to leave money to her children instead - given the above, if this came to light, I think it could be as, if not more, problematic but the house-buying one has me puzzled.

Any thoughts?

I think the question you’re asking is, is s it deprivation at all.  She’s not disposing of the capital, just changing the form it takes.  If she’d bought gold, that retains its value but just happens to be taken into account, unlike a home which is also the same value in a different form.

However, sadly, searching our Social Security Law CD-Rom gives:

R(IS)13/94

6. The tribunal also erred in another, perhaps more important respect, they failed to consider the possible application of regulation 51(1). Manifestly, in providing the deposit for the acquisition of the Council house the claimant deprived herself of capital. Of course, she acquired the equity in the property as a quid pro quo, but there was still an initial deprivation of capital resources, and since what she received was a home, this was something which necessarily had to be disregarded when calculating her total capital. The result was that the claimant was able to reduce her capital assets below the statutory limit, but if she did so with the object of claiming income support, then by operation of regulation 51(1) the capital, of which she deprived herself , was to be treated as still possessed by her.

Moreover, the intention to secure income support need not have been the primary motive; it was enough if it was a significant object. Now where, as in this case, the claimant was apparently dependent upon income support to pay the mortgage interest, it is difficult to see how the securing of income support was not at least one of the purposes behind her using her capital as a deposit for the acquisition of the Council house. Of course, her primary motive was doubtless to acquire the premises; but it is difficult to see how the desire to obtain income support did not form at least a significant motive for this action. At any rate the tribunal should have considered this aspect of the case. For if they had taken the view that regulation 51(1) applied, then the claimant would have received no income support at all and the question whether or not there should be any restriction on the amount of mortgage interest allowable would simply not have arisen. Accordingly the tribunal’s failure to consider regulation 51(1) constitutes a further ground on which I must set aside their decision.

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CIS 112/1994
5. It is contended on behalf of the adjudication officer that the tribunal erred in law in concluding that the claimant could not be caught by regulation 51(1) of the Income Support (General) Regulations because she still possessed actual capital and that actual capital was such as fell to be disregarded under the provisions of Schedule 10. I am satisfied that the members of the tribunal did err in law in holding as they did. The precursor of regulation 51(1), in the days of supplementary benefit, was regulation 4 of the Supplementary Benefit (Resources) Regulations 1981. That regulation was the subject of elucidation in a number of Commissioners decisions but it is only necessary for me to refer to R(SB) 40/85 where the Commissioner explained that a claimant would have deprived himself of capital even though he still possessed an asset of equal value. I set out what was said by the Commissioner at paragraph 8 of that decision:

“It is in my judgement perfectly proper for an adjudication officer or tribunal to conclude that a person has deprived himself of a resource if as a result of his own act he ceased to possess that resource whether or not he becomes possessed of some other resource in its place. He may thus be held to have deprived himself of a resource if he gives it away, if he uses it for a holiday or in any other manner that leaves no resource at the end of the day; or if he uses it to purchase a resource of equal value which will retain its value; or which will rapidly depreciate or which will fall to be disregarded for the purposes of supplementary benefit.”

I bear in mind that those words were spoken of regulation 4(1) of the Supplementary Benefit (Resources) Regulations 1981 and that there is an important difference in the wording of that paragraph when contrasted with regulation 51(1) of the Income Support (General) Regulations. The supplementary benefit regulation gave a discretion to the adjudicating authorities as to whether or not a claimant could be treated as still possessing the resource. That discretion allowed the adjudicating authorities to avoid double counting. If a claimant deprived himself of a resource by acquiring another resource, then he would not be penalised twice and only the difference between the value of the notional resource and the actual resource would be held against him under the provisions of regulation 4(1). However the legislature did not provide for a discretion in regulation 51(1) of the Income Support (General) Regulations. It would be grossly unfair to a claimant if he were to be penalised twice and it does not seem to me that it can have been the intention of the framer of the regulation that such should be the case. But such jeopardy does not come about in the instant case because, although the claimant is caught by the notional resource and is to be treated as still possessing it, he cannot be penalised because of the possession of the actual resource, namely the insurance policy or rather its surrender value, that is to be disregarded under the provisions of the Schedule. So I am satisfied that double counting is avoided. It is to be borne in mind that the word “deprive” is used in regulation 51(1) and that that is an ordinary English word and is not to be given any legal definition. I am satisfied therefore that a person deprives himself of a resource if he ceases to possess it regardless of the fact he received some other resource in return. The issue arising under regulation 51 is not free of authority. CIS/809/1991 bears directly on it; that was a case where a claimant purchased on mortgage a council house, and then sought to include in his income support entitlement the mortgage interest payable, it was held by the Commissioner that it was not enough for the tribunal to consider solely whether the restrictions imposed by paragraph 10(1) of Schedule 3 to the Income Support (General) Regulations 1987 applied. He emphasised that consideration must also be given to the question of whether the acquisition of the council house activated regulation 51(1) and in consequence whether the claimant ceased to be entitled to income support altogether. In the case before me the claimant acquired an insurance policy but in doing so she deprived herself of £2,500.00 and regulation 5191) was applicable, provided it could be shown that her purpose was to secure, or increase the amount of income support. In my judgment the tribunal erred in law in deciding that no deprivation had taken place because the claimant had acquired another resource which fell to be disregarded. It is on this ground that I set aside their decision.

Thanks Gareth.

Have to say that on reading R(IS)13/94, the situation doesn’t look optimistic.

Although this is mildly encouraging from the DMG

84816
DMs cannot decide the purpose of the deprivation was to get SPC or more SPC if the only fact is that after depriving themselves of capital
1. people should have realized
or
2. the effect of it would be
they would need SPC

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/515170/dmgch84.pdf

if she’s on PC, she’ll still be able to get her underlying pension. 

Council Tax reduction.  will she be living in the property on her own? single person discount.  and may still qualify for CTR in any event depending on her pension position

would she still qualify for further reduction if all she has is her pension?

will she be able to buy somewhere outright without mortgage?

and if she’s old enough for PC needs to look forward to what might happen if she later needs social care, care home etc…..

i’d be inclined to do the math to see what the exact position will be if she buys ..... then she can take a fully informed decision on the basis of the potentials either way…. bearing in mind her budget assuming no more pension credit

I’ve always thought that’s all you can do with capital, - put it into the roof over your head. Different of course for a property you don’t actually live in ...

Shared ownership and HB work on this basis?

I’ll see if I can reference my position ...

Thanks both. If there was something that could provide some certainty, that would be very helpful but I haven’t been able to find anything soo far, other than the “reasonableness” of buying a house with the inheritance.

Paul_Treloar_AgeUK - 24 January 2017 02:59 PM

Client is due to receive just over £100,000 in inheritance, currently receives PC, HB and CTR. Doesn’t want to lose these so she is considering using the money to buy a house or flat.

Would this be treated as deprivation? Can’t find much case law dealing with this specific issue. Her significant operative purpose is clearly and avowedly to spend the money to continue her entitlement to these benefits (as per R(SB)9/91).

Yet, in doing so, she will reduce the burden on the state by longer requiring HB payments to be made (R(IS)15/96 might apply here?).

Also considering a variation deed on the will to leave money to her children instead - given the above, if this came to light, I think it could be as, if not more, problematic but the house-buying one has me puzzled.

Any thoughts?

Yes spending for house will reduce HB and need to claim this but is not ‘significant operating purpose’ the sticking point IE she would still remain and wanted to remain entitled to PC as a reason for spending the dosh. On the other hand is spending £100,000 to remain entitled to a few quid pension credit(Depending on her state pension) really her only or any reason to spend the money. If invested the return may more than compensate for loss of PC. The numbers might simply not stack up for it to be arguably deprivation

Variation deed on the Will Interesting. This could be harder to argue than simply buying a house as the beneficiary is making a deliberate decision to change the outcome of an inheritance but again depends on reasons.

What about trying an inventive argument?

The regs say:
Notional capital
21.
(1) A claimant shall be treated as possessing capital of which he has deprived
himself ....

(2) A person who disposes of a capital resource for the purpose of–
(a) ...
(b) purchasing goods ... if the expenditure was reasonable in the
circumstances of the claimant’s case,
shall be regarded as not depriving himself of it.

There’s no definition of goods in the interpretation section so you could argue that it takes its everyday meaning, rather than the legal definition around chattels and movable property. Sch. 5 (disregarded capital) uses the wording ‘personal possessions’ so this must have a different meaning.

Not really sustainable but it might get past a sympathetic DM.

person turns money into a house.  person still has the capital which was previously represented by the money and is now represented by the house.  one’s house is not capital for means testing purposes (unless they’ve changed that rule as well). 

say someone is renting a house and claiming hb.  person then inherits a house, so gives up the tenancy and hb claim and moves into the inherited house.  is there an analogy there that would be helpful?

clearly we all think its seriously counter intuitive that someone should be prevented from securing themselves a permanent home that no one can ever take away by the operation of the deprivation rules.

i was sure that there used to be something that would assist in this type of situation, but it was so long ago .......

In R(IS)13/94, similar to client’s situation, it was decided deprivation could have taken place when someone used a sum of money as a deposit to purchase their council house (as well as taking out a mortgage for the remainder of the cost). The Commissioner finds that:

“Manifestly, in providing the deposit for the acquisition of the Council house the claimant deprived herself of capital. Of course, she acquired the equity in the property as a quid pro quo, but there was still an initial deprivation of capital resources, and since what she received was a home, this was something which necessarily had to be disregarded when calculating her total capital. The result was that the claimant was able to reduce her capital assets below the statutory limit, but if she did so with the object of claiming income support, then by operation of regulation 51(1) the capital, of which she deprived herself , was to be treated as still possessed by her.”

This is one of the causes of my current anxiety. It does feel very counter-intuitive that a deprivation decision would be made, but I can’t find anything that’s especially helpful.

If someone who was expecting to come into money was to buy a house with a mortgage or other loan then use the money to pay off the debt when it comes through would they have no notional income through the operation of reg 21(2)?

“(2) a person who disposes of a capital resource for the purpose of

(a) reducing or paying a debt owed
(b)......

shall be regarded as not depriving himself of it”

ikbikb - 25 January 2017 12:29 PM

Variation deed on the Will Interesting. This could be harder to argue than simply buying a house as the beneficiary is making a deliberate decision to change the outcome of an inheritance but again depends on reasons.

Thanks, I think we’ve pretty much discounted this option for the moment.

Damian - 25 January 2017 05:02 PM

If someone who was expecting to come into money was to buy a house with a mortgage or other loan then use the money to pay off the debt when it comes through would they have no notional income through the operation of reg 21(2)?

“(2) a person who disposes of a capital resource for the purpose of

(a) reducing or paying a debt owed
(b)......

shall be regarded as not depriving himself of it”

That’s another way of looking at it, certainly. Possibly a risky strategy in one sense, but with interest payments becoming loans next year, the alleged capital gain is removed to a degree so perhaps it’s at least something to think about. Cheers.

Damian - 25 January 2017 05:02 PM

If someone who was expecting to come into money was to buy a house with a mortgage or other loan then use the money to pay off the debt when it comes through would they have no notional income through the operation of reg 21(2)?

“(2) a person who disposes of a capital resource for the purpose of

(a) reducing or paying a debt owed
(b)......

shall be regarded as not depriving himself of it”

This could broaden the argument. In that does the intention for deprivation simply apply to the act of paying the new mortgage off. In which case it could be hard to argue deprivation and award notional capital. Or is the assessment of deprivation to include the buying of the house as well as part of a larger act.

Problems would be

How would they get a loan to buy the property unless it was secured by the inheritance so linking these acts together as one action.
Would they have been in a position to even consider this until they got the inheritance presuming they were on a means tested benefit(s) again so linking the actions.
This inevitably returns, as it should, to the reason for buying the property in the first place,
Finally isn’t the fact that the claimant could be taking advice on this very issue a significant point