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Forum Home  →  Discussion  →  Income support, JSA and tax credits  →  Thread

Affect of loan on IS and CTB

dbcwru
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Darlington Welfare Rights, Darlington Borough Council

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Total Posts: 114

Joined: 22 June 2010

Clt and her husband and adult disabled dauggter live in a council house. They pay a rent top up as it is a 3 bed house. She is worried that they may be forced to move to a smaller house and she doesnt want the upheaval so she is looking into buying the house under the right to buy scheme. A relative has offered to lend them the money to buy the house.

Other than the loan having to be legally arranged and its purpose clearly set out in any documents, would this affect their entitlement to IS or CTB?  Thanks

nevip
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Welfare rights adviser - Sefton Council, Liverpool

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Joined: 16 June 2010

Quistclose Investments LtD v Barclays Bank (1970) House of Lords.

Rolls Razor LtD had a £484,000 overdraft with Barclays Bank. However it needed to borrow a further £210,000 in order to pay dividends to share holders. Rolls Razor borrowed this money from Quistclose Investments with the express provision that it was to be used solely for the purpose of paying the dividends. Rolls Razor then deposited the money in a special account with Barclays separate from the company’s main business account. However Rolls Razor went into liquidation before paying the dividends. Then Barclays held the money and used it to reduce Rolls Razor’s overdraft.

Held:

Until the purpose of the loan was carried out then Rolls Razor held the money on trust for Quistclose Investments. Thus the money could never become part of Rolls Razor’s resources and therefore Barclays Bank, as a creditor of Rolls Razor, could not lay claim to it. Consequently the money had to be returned to Quistclose Investments.

Note, the fact that the money was held in a separate account was conclusive in this case but subsequent cases have held that there is no requirement for the money to be held separately as long as the intention behind the loan or gift is clear.

Thus the principle established in the Quistclose case is clear for Social Security law. Because a gift or loan advanced in such circumstances is held on trust for the lender/donor until its purpose is carried out then it is never part of the claimant’s resources and thus the claimant cannot possess it.