IR ESA and Trust Fund Capital

Nevip - maybe I am being too definite about this and I agree that there could be some anti-avoidance arguments by DWP. However I don’t think reg 51 covers the point as clearly as you seem to suggest. An interesting recent case came up in the Isle of Man in 2012 (http://www.gov.im/lib/docs/registries/tribunal/cis0112.pdf) where clt argued they had disclaimed. Court cited reg 51 (Manx regs contain an equivalent provision). Clt lost but on basis that there had been no disclaimer. Soc sec certainly put in argument the view that “dispose” included disclaimer but para 49 of judgment states that if clt had disclaimed “he would be deemed never to have had an interest in the property”. I admit that doesn’t stop an anti-avoidance argument being raised but it isn’t done in the many cases where disclaimers are used to avoid income tax for example. Would cost of care/benefits cases be different - perhaps???

“However I don’t think reg 51 covers the point as clearly as you seem to suggest. An interesting recent case came up in the Isle of Man in 2012.”

I’m not definite one way or another.  That’s precisely my point. 

At para’ 64 0f that decision it states:

“On the facts in the appeal in hand I am drawn to the conclusion that the Deed of Assent of 16th September 2001 could be seen as marking the end of the administration of the estate, since effectively, instead of vesting the Property in the Appellant it vests the Property in the Family Trust. It seems to me that this action could not have occurred if the administration of the estate was still ongoing. On that analysis, immediately before execution of the Deed of Assent the personal representatives could be viewed as holding the residue on a bare trust for the Appellant. Alternatively, taking a cautious approach if I am wrong here and the estate was not fully administered at that point, the fall-back position is that in September 2001 the Appellant‘s expectancy of receiving the transfer of the Property was very close to maturing into a transmissible interest and could have been assigned in equity for value”.

That’s the grey area.  Apart from anything else, does a right to assign or a right of a chose in action have value?  I certainly wouldn’t be advising any client of mine that, as a matter of law, the act of renunciation, in itself, would never cause the notional capital rules to bite.  In the absence of any definitive case law to the contrary on that point, on the facts of this case, to do so would be very unwise indeed.  However, if anyone is aware of any definitive case law to the contrary on that point I’d be perfectly happy to defer to it.

Going slightly off Pernish and Nevip’s points (which I find extremely interesting) - would purchasing a property be a way round not losing the 14k of capital under diminishing rules.

I know under part rent and part buy schemes - there is scope to claim
(i) Housing Costs for mortgage;
(ii) HB for rent; and
(iii) CTR for council tax

Would buying a property constitute intentional deprivation?

Any thoughts welcome -  I was just thinking aloud

In R(SB)40/85 the commissioner states:

“It is in my judgement perfectly proper for an adjudication officer or tribunal to conclude that a person has deprived himself of a resource if as a result of his own act he ceased to possess that.resource whether or not he becomes possessed of some other resource in its place. He may thus be held to have deprived himself of a resource if he gives it away, if he uses it for a holiday or in any other manner that leaves no resource at the end of the day; or if he uses it to purchase a resource of equal value which will retain its value; or which will rapidly depreciate or which will fall to be disregarded for the purposes of supplementary benefit.

Cited with approval in CIS/112/94

Nevip - first I must say that I absolutely agree that no-one should be encouraged in any way to risk this action - in the case of my client I pointed them back to the solicitor dealing with the estate for advice. On the other hand seen as a question of law I think that there is a possible argument that an outright renunciation /disclaimer of a gift means that the legatee never has the property at all and therefore cannot be said to have disposed of it. The point doesn’t seem to have arisen in any case - para 64 of the Manx case that you refer to does not cover it since the court had already concluded that there was no disclaimer. The issue was at what point the legatee’s interest vested and clearly that can only be at the end of the administration if it is a residuary bequest (which it was there). On that basis it seems at least arguable that where a legatee renounces or disclaims before a legacy is paid to them they don’t have a chose in action which they are giving up (after all the estate might not have enough funds to meet the bequest).

I would expect if this point ever came up (and I don’t know any case where it has) then DWP or a local authority would probably make an anti-avoidance argument - but that is asking a lot of a tribunal or even court. The alternative is to argue for a definition of “disposal” to cover renunciation/disclaimer - straightforward issue of statutory interpretation and purpose over literal construction.

Sorry if I seem to be pedantic on this - as you say the client’s position is the one to watch and no risks should ever be taken. However seen merely as a legal question it is interesting: I suppose my real point is that I think it would need legislation rather than simply a court decision. Or at the least I could see it making appeal…