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Forum Home  →  Discussion  →  Income support, JSA and tax credits  →  Thread

Capital - loans

Victor
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Welfare Rights Officer, Stockport Council

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Client is saving from his benefit income to buy a car.  Family member loans him some money towards the cost of the car.  DWP find out, stop his benefit (currently income based ESA) and generate overpayment (of IS and ESA) for past period.  He never used the money to buy a car and now pays back his relative the amount he borrowed. 

Is it possible to argue that the amount of the loan should be disregarded for the period it was in his account as it was for a specific purpose?  CPAG book mentions a ‘Quistclose’ trust but I am having difficulty getting to grips with the argument.

[ Edited: 22 Feb 2017 at 08:49 am by Victor ]
Daphne
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You might find CSJSA/344/2015 helpful - although it’s a Scottish decision it refers to how the Quistclose trust works in England and Wales and I think is saying in effect that if it was lent for a specific purpose then it’s regarded as being held in trust.

Brian Fletcher
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Welfare Rights, Wigan & Leigh Carers Centre, Wigan

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Quistclose trust in simple works like this.

I lend you £2 to buy yourself a bag of chips. You have physical possession of the £2, but it belongs to me unless you buy the chips.

If the chippy is shut, you have my £2 in your pocket, but it is still my £2, and you are simply holding it in your pocket until you can give it me back.

If you buy the chips with the £2, the chips are yours, but now you owe me £2

The beneficial interest in the £2 always belongs to me unless its converted to chips for you, ie used for the purpose for which I gave it to you

ClairemHodgson
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Solicitor, SC Law, Harrow

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and in any event, did the loan in fact take him over the limit, if so by how much, for how long, and so on and so forth.

BC Welfare Rights
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The Brunswick Centre, Kirklees & Calderdale

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Victor - 22 February 2017 08:46 AM

  He never used the money to buy a car and now pays back his relative the amount he borrowed.

When you say “pays back” do you mean in instalments? If so, did he use the original money for something else and if not, why did he not just pay it back in one go? I think you will find it difficult to argue that it should be disregarded as a loan for a specific purpose if it was subsequently spent on other things even if it was later repaid.

The ‘cleaner’ the arrangements were the easier it will be to get it disregarded. Relative lends me £5k to buy a car, I put it in a separate bank account, never touch it, decide not to buy the car, pay back the £5k. Easy argument to make.

Relative lends me £5k, I put it in my current account, spend some of it on everyday living thinking I will top it up later, decide not to buy car, pay back £3k in one go and then repayments as and when I can afford it for the £2k balance. Messy!