I have a client who used to own his home but was made bankrupt in March this year. His wife kept £25,000 from the sale of the property as at the time the couple formally separated. The couple are back together again and they decided to give the £25,000 to their daughter in order for her to buy a property that my clients were to live in. The daughter used the money for a deposit and has a mortgage on the house. The daughter charges them a small rent of £260 per month for a two bed house. The daughter has made substantial alterations on the property to fit my cleints disability needs.
The official receiver is aware of the £25,000 and has accepted it in the bankruptcy as legitimate expense.
The council have refused to pay HB as they dont believe the client has a commercial tenancy (they do have proper rent agreement)Reg 9.
They did start to pay CTB but have now stopped it as they have decided to treat the £25,000 as notional capital.
In the DM guide its says that if someone is bankrupt then they are not to be treated as the beneficial owner of capital. It also says that if they are not the beneficial owner then the notional capital rules do not apply.
Can anyone point me in the right direction of using this info in relation to HB/CTB.
By the way Income Support is still in payment...so far!

A couple of questions first,

Was the house sold by the OR or as part of the seperation? Where does the £25k figure come from? Were there further proceeds of sale? At what point was he discharged from barnkruptcy? Please tell us more about the arrangement to give £25,000 to the daughter. Was anything in writing? Was this a genuine gift, I'm not sure it was a gift if they gave it to her so she could by the property? If they needed somewhere to live why didn't they use the money themselves?

In respect of HB and comerciality they have got some pretty sticky hurdles to get over. Comerciality is a bit of a vague concept sometimes but can include the question of whether this is an "arms length" agreement and whether the terms of the agreement are comensurate with a "normal" (I use that word cautiously!) tenancy. In this case they helped fund the purchase price, have what I assume is a below market rent and the L/L has provided extra adaptations. Would the daughter have bought the property and rented it out anyway even if they were not the tenants?

There are some conflicting problems with the HB and CTB and notional capital.

If the £25k was a genuine gift to the daughter with no strings attached it is starting to sound like depravtion. However you have to look at whether they had a significant operative purpose of increasing or maintaining their entitlement to benefit. Its a question the trinbunal will ask..why did they give away £25 when they were of limited means?

If the £25k however was not a gift but was used to buy an interest in the property (there may be an assumption of a resulting trust here), it is not usually seen as depravation to use your capital to but somewhere to live. However, I haven't checked this yet but I'm sure I remember there being a bar on getting HB for a property in which you have a financial interest. So this scenario may save the CTB but not the HB

Thanks for your reply. In answer to your questions -
The house had to be sold in order to pay huge debts. My client was a self emplyed antique dealer who was attacked and left with Post Traumatic Stress and then involved in a car accident. He was unable to continue with the business and pay his staff. The house had to be sold to pay off debts. This became a strain on his marriage and him and his wife separated. They had a legal separation drawn up. He wanted his wife to have all the proceeds of the sale of the house which was £25,000, as he had been using some of the money irresponsibly due to his PTSD. The wife received the money from the sale and then they got back together again.
He only went bankrupt in March this year and will be discharged March 2008.
When the wife had the money she agreed to give it to the daughter who said she would use it to buy a property on a mortgage so the mother could live there. They got back together so they are both iving in the property. The daughter and son in law have a mortgage on the house. My client has no interest in the property. They knew they couldnt get a mortgage because of the bankruptcy.
The daughter would not have bought the house without the £25,000 as this money was needed as a deposit.
Hope this helps. If you need to ring me my number is 01754 761141. I am Sue Cox.

"By the way Income Support is still in payment...so far!"

So long as the clmt is LAWFULLY in receipt of Income Support, the LA is required to ignore any other income and capital. HB regs 2006:

Schedule 4: para 12
Schedule 5: para 4
Schedule 6: para 5

The LA can only go behind the DWP's decision if there is evidence that the clmt is not lawfully in receipt of IS (see "Hamilton" - link below).

www.rightsnet.org.uk/pdfs/R_V_South_Ribble_DC_exp_Hamilton.doc

Regards

Good point Kevin, must admit that I had missed that, but it doesn't solve the comerciality problem of course.

I have a nasty feeling that the LA will be contacting the DWP with the notional capital information. I am expecting an IS suspension in the very near future.

But the underlying question which the LA will keep coming back to is why when the claimant and partner had £25,000 did they give it to their daughter to allow her to but a property and they rent it back, knowing that the only way they could then afford the rent was to claim HB, when they could have used the £25,000 to rent a property and not needed recourse to public funds.

The issue is why did they take that course of action.

Bob,

"The issue is why did they take that course of action."

For the LA, there is no issue at all unless the DWP have not yet considered the issue and / or indicate there is a problem with the clmt's entitlement to IS.

The LA can only suspend if it can be shown there is a doubt about the clmt's entitlement. If, having been made aware of the clmt's circs, the DWP decide IS should continue, HB/CTB MUST continue on the basis of the clmt's IS entitlement - even if the LA thinks a different conclusion should have been reached by the DWP.

The only point at which the LA has to start investigating the clmt's income, or capital, is where the DWP decide there is no entitlement to IS (same for JSA(IB)). Even during suspension of HB/CTB, the LA can do little until / unless the DWP determines IS entitlement should cease.

The legislation and case law cited in my earlier post confirms this approach to be correct.

Kevin

"...For the LA, there is no issue at all unless the DWP have not yet considered the issue and / or indicate there is a problem with the clmt's entitlement to IS..."

Thats true in respect of the capital issue but the LA can still make a decision on comerciality/contrivance. IS does not passport claimant through the questions on liability

I can't help feeling that the resulting (or maybe even constructive)trust issue has some life in it.

Parents can't get a mortgage becasue of bankruptcy but daughter can. So parents give money to daughter to enable the property and hence mortgae to be put into her and her partners' joint names. All this on the express understanding that accommodation wil be provided to parents. Looks like some sort of interest in possession in a trust to me, not least becasue they are also (through any rent they are paying) actually increasing their beneficial interest in the property by paying part of the mortgage indirectly.

Where I think I'm going is that it looks a possible interpretation of the facts that they occupy the property not under a tenancy but by virtue of having an equitable interest in it. It looks a lot like what one HB expert of my acquaitnace calls another story from Planet Housing Benefit (things you wouldn't believe people could do to themselves). Or the sort of thing you could include in a Land Law examination for final-year law students.

It might be worth running this past a real, practising solicitor who knows something about both land law and equity if you know a kind one who would oblige. It makes me very uneasy.

Steven,

Yes - you're right. My responses only relate to the means-testing aspect.

I had been deliberately avoiding the issues relating to liability (including HBR 9 issues) simply because there are so many arguments that can be put both for and against. I should have explained that earlier.

Having said that, the issue of ownership of the property is interesting. Not sure how relevant it is in this case, but "Burton" may be worth a look:

BURTON v New Forest DC (2004) EWCA Civ 1510
www.bailii.org/ew/cases/EWCA/Civ/2004/1510.html

If the above is of interest, the original CD may also be of interest:

CH/0563/2003 (i.e. Cmmr's original decision on Burton)
www.bailii.org/uk/cases/UKSSCSC/2003/CH_563_2003.html


Assuming that the clmt is liable AND that his payments are eligible, here are the citations of 6 CDs that give a broad flavour of non-commercial & taking advantage (in no particular order):

R(H) 1/03
CH/2125/2005
CH/2482/2006
CH/2899/2005
CH/3235/2005
CH/3282/2006

Regards

Just an update on this one, if anybody is interested. The Council have now reinstated the Council Tax Benefit as client is in receipt of Income Support but are refusing to pay HB as they are saying it is a contrived and non commercial tenancy under Reg 9.
They have added that I can only appeal if I have additional information that has not been considered!!!!!! I shall be putting in my appeal. Thanks for the helpful replies.

"They have added that I can only appeal if I have additional information that has not been considered!!!!!!"

What are they on about??

Sounds a very deserving case but... are they having a laugh? They gift £25K to their daughter to enable her to buy a property for them and then she charges them rent?

I feel confident in saying you'll never get a commercial decision in your favour with that one. The daughter appears to have only got a mortgage to house her parents, because they couldn't. The £25K gift was obviously a requirement of this, without which she couldn't have got the mortgage. The £25K was effectively useless to claimants as they personally couldn't use it for a mortgage, so it a no-brainer. I agree with the comments above, even if there is no formal trust, the whole thing is far to close to home to make it commercial.

I know this has taken ages but my client has finally been granted full HB and CTB. The council have agreed that it is a commercial tenancy. This was agreed before the case went to an appeal hearing.