It all comes down to the reason why they gifted the house to children.
If the main purpose was to deprive themselves of capital for the purpose of claiming benefit, or increasing the entitlement, then the notional captial rule bites.
The obvious defence is that they were living in the property its capital valued was disregarded, so by gifting it there was nothing to be gained in the way of extra benefit and the notional capital rule cannot be met. The DM would have to consider if there were future benefit interests in mind; for example, did the couple know they would be seperating, and making seperate claims, before gifting the house?
There are other relevant questions such as:
* would the couple have stayed in the house had they not seperated? * did they know about the capital rules for benefit? * why did they gift it?
There's probably others but that's all i can come up with for now.
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