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Income from Capital?
Client’s wife died intestate and ownership of their property is subject to court proceedings as 3 sons also have an interest in the property. He currently gets £500 per month rent from a tenant while client lives elsewhere.
Looking at CPAG P292, it looks like income from a capital asset is ignored as income but treated as capital from the date it is normally due to be paid. For example, in the case of a rented property that falls to be taken into account, any rent from that property should be taken into account as accruing capital and not as income.
That means that at £500 per month, you would reach the £6000 capital limit after 12 months. But in the para headed ‘Tenants in other properties’, at the top of the page, it says the full rent counts initially as well as the capital value of the property itself - that would mean my client could potentially be above the capital limit from the start if the value of the asset is counted? Am I reading that correctly?
As the ownership is under dispute, does that mean only the income would count as income as he can’t be treated as owning a capital asset?
Any thoughts gratefully welcomed.
If the asset is taken into account as capital, even with a very small value, any income it generates is ignored as income and treated as capital. In the case of rent, I don’t think that means that you tot up a whole year’s rent and add that sum to the value of the asset: it just means that each time the rent is received, it counts immediately as part of the claimant’s capital on that day and for as long as it sticks around. If the rent income is spent on living costs or property upkeep, it will not keep accumulating from one month to the next - when it’s gone it’s gone. The claimant’s capital is measured by what he currently has, not what he is expecting to receive over the course of a year.
If the asset is disregarded, the rent income counts as income less property-related outgoings.
There is a subtle difference between capital that is disregarded and capital that is taken into account but has no significant value.
If your client wishes to occupy the disputed property as his home, the legal proceedings mean that the asset is disregarded but the rent is counted as income. If he does not intend to do that and the proceedings are about getting a share/all of the cash price, the asset is not disregarded but the dispute might well suppress its value - depends what kind of property it is and how realistic his claim to all/any of it. DWP will look at what his anticipated share would be worth right now to a speculator.
Ok thanks. The mortgage company is looking to repossess the property but can’t until ownership is established so I’m thinking the capital value of his asset is likely minimal and, from what you say, his £500 p/m income will not be counted as income for IS purposes?
If the property is subject to court proceedings, then he can’t realise the value until those proceedings are sorted, so effectively, the actual value of the property that can be realised at the moment must surely be nil?
I thought that initially but read something in HB regs about it being ‘Chose in Action’ or in Scotland ‘Action for Payment’ which, as a future claim on an unadministered estate, has a market value and should be valued as such.
Ok thanks. The mortgage company is looking to repossess the property but can’t until ownership is established so I’m thinking the capital value of his asset is likely minimal and, from what you say, his £500 p/m income will not be counted as income for IS purposes?
Looks that way. Not disregarded, combination of mortgage and court proceedings reduce value to effectively nothing (slight caveat I think about that - amount of mortgage, nature of property - possible a speculator might take a punt on the claimant emerging with a significant asset and buy his right to receive a share of the proceeds)
Many thanks, folks
Er, If it’s not definitely his property then it’s not definitely his income either, surely?
Er, If it’s not definitely his property then it’s not definitely his income either, surely?
You would think, wouldn’t you? To be honest, I just don’t know what to tell this guy!
The rules on the disposition of estates of intestate persons are governed by the Administration of Estates Act 1925. Each survivor’s interest is defined under section 46 of the Act. And, while on the one hand the rules appear quite straight forward, on the other, can appear quite convoluted.
However, if the estate is tied up in legal proceedings (and it would be useful to know the basis of any legal challenge) it is difficult at this stage, if not impossible, to determine with any degree of accuracy, the value of anyone’s share. Even more so if any personal representative has exercised the power under s44 to postpone distribution of the estate for 12 months.
and thinking about it, i have to wonder if the rental income should in fact be going into the executors or a trust bank account whilst the dispute is resolved.
someone needs to be seeking legal advice on that particular point sharpish.
as if it is eventually decided, for instance, that the house is to be split value wise amongst various people, then your client will have been receiving rent to which he wasn’t entitled…...and might end up having to pay it/proportion of it to the people who were, or to the estate…
but at least that thought means there’s defo no income for him until the dispute is resolved and i’m at a loss to see how legally anyone could take it into account as his…
Thanks for those observations. We are in Scotland so the law may differ but I’m guessing the much broader principles concerning administration of estates may be similar. I think I will have to be very honest with the chap and advise that, until the estate is settled, I can’t say with surety how the capital or income it will affect his IBJSA claim, though it’s possible that the income will be treated as capital. And advise that said income may not be entirely his!