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3 properties and calculation of capital
If the claimant possesses two items of capital, one of which can be cashed in without any selling costs while the other would involve feels or commission, how do you approach the 10% deduction?
Simples.
Capital which a claimant possesses in the United Kingdom is to be calculated at its current market or surrender value less—
(a) where there would be expenses attributable to sale, 10%; and
(b) the amount of any incumbrance secured on it.
There are two possible ways of arriving at the total capital value.
(a) Total the capital and deduct the cost of sales and incumbrances
...
If we assume that 10 doesn’t have a cost of sale, in the previous example we get
In (a) we get
Total gross value with cost of sale applying is 20+3 = 23
10% deduction for cost of sales = 2.3
Gross value with no cost of sale applying = 10
Incumbrances = 5
23+10-(2.3+5) = 25.7 capital value
As I understand it the case law cited earlier in the thread has already established that in your method (b) the third property would not be carried forward into the final aggregation with a negative value: its individual calculated value could not be less than zero.
I haven’t seen anything that says that. I’ve seen case law that says you don’t offset a debt against another capital item - this doesn’t do that. I’ve seen something saying a total negative value is irrelevant - this isn’t that either. What I haven’t seen is anything that says:
3-5=0
or
5+ -2 = 5
You can’t offset a negatively valued asset against a positive one.
The regs clearly state that you can only deduct encumbrances which are secured on the asset.
The only way an asset can be negatively valued is if the encumbrance is greater than the value of the asset (or greater than 1.111 x the value where selling costs are applied).
If you “carry forward” the negative value, you would be offsetting part of the encumberance on property A against property B.
The only way to ensure that encumberances are only deducted from the property against which they are secured is by applying a floor value of nil to individual items.
So this is not a case of 5 + (-3) = 2
The formula is 5 + 0 = 5
The regs clearly state that you can only deduct encumbrances which are secured on the asset.
The only way an asset can be negatively valued is if the encumbrance is greater than the value of the asset (or greater than 1.111 x the value where selling costs are applied).
Agreed
The only way to ensure that encumberances are only deducted from the property against which they are secured is by applying a floor value of nil to individual items.
But the regs don’t say that. What does?
The caselaw provided by Kevin says you cannot offset negatively valued assets against positive ones. The only way to achieve this is by imposing a minimum floor value of zero to an individual asset. Similarly, this is also the only way to ensure that encumbrances are only offset against property against which they are secured. By adding a negative asset to a positive one you are transfering the balance of the encumbrance to an asset against which it is not secured - the regs state you cannot do this.