Wed 08-Sep-04 05:51 PM by shawn

I have a client who has two Scottish Widow ISA's total capital value of £8'000, which give her quarterly payments into her bank account of £70.

She has claimed Savings Credit and Council Tax Benefit.

The LA were taking the income from the ISA, and ignoring the capital.

PS has now assessed her entitlement to Savings Credit and treated the ISA as capital and ignored the income.

As she also has another £12'000 in savings it is more beneficial for the ISA to be treated as income.

I can't believe the Regs allow this discrepancy but have looked at them and can't see anythng specifically dealing with ISA's. Can anyone point me in the right direction?

ISA's are capital - the council is totally incorrect in treating them as income - when they realise their mistake, there's going to be a large overpayment .....but being as it's down official error, your client should not be asked to repay, although they might try it on!

I should imagine that the error has been caused by some inexperienced assessor, and it may not be the only one in that case - they can't possibly have got the regs that wrong could they - in either case I'd buy a ticket to see the face of the Benefits manager when they realise....

With £20000 plus in savings, and no entitlement therefore to CTB etc, the question is what do you do now with the information - I think I'd advise the client accordingly, leaving them to tell the council or seek her written authority to inform them on her behalf...the latter plan does have some appeal ..........

Hmmm - Mike's interpretation may well be right - ISAs are usually capital, bearing in mind that you might incur penalties for cashing in early, so that the actual worth may be less than face value. But, I note that the ISAs are with Scottish Widows, an insurance company. Nowadays, insurance companies offering investments tend to write in a life insurance clause indicating how payment will be made to the investor if they die during the currency of the investment, thus terminating it early. Normally the purpose will be to protect the investor's estate against early encashment penalties.

The Commissioner in R(IS) 7/98 confirmed that such an investment was actually a life insurance policy and its capital value was to be disregarded. DMG para 29406 draws attention to this CD and confirms that such an investment is disregarded as capital. It may be that both Scottish Widows ISAs have something like this written in. If so, it follows that income from such capital is also treated as capital, not income.

R(IS) 7/98 dealt with a somewhat atypical investment, in that the investor was not simply drawing interest from the capital invested, like a normal income bond. She was instead drawing out capital at a fixed rate ('capital draw-down'). The interest earned, according to the Commissioner's assumption, was being added to the remaining capital to make it last longer before its final exhaustion. For IS, HB & CTB purposes, if the amount of capital still tied up in such an investment, when added to other capital, exceeds the upper capital limit, then the amounts paid by instalments count as income. Otherwise, the whole sum still outstanding is added to the rest of the claimant's capital, to be considered for tariff income. The provision to treat capital as income does not apply to PC, so would not have bitten the elderly lady in 7/98 if PC had been introduced back then.

One rider in R(IS) 7/98 which needs pointing out: watch out for people tying up their money in such life-related investments, with a view to getting public funds. Deprivation/notional capital might apply.

I think the income bond in 7/98 was a pretty unusual case, and capital draw-down doesn't apply to ISAs, I think. With them, the whole of the capital is tied up till maturity or early encashment, or so I believe. So, if there's a life insurance clause in either or both of the Scottish Widows ISAs, it/they should be fully disregarded, income and all. Both the LA and SPC could be wrong !

Jim