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ESA - DEPRIVATION OF CAPITAL

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AlanEquity
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I am assisting a member who has received an inheritance OF £125,000 which has taken her out of eligibility for IRESA for the time being. She gets CRESA and highest rates of PIP and lives in a shared ownership flat and is also paying an interest-only mortgage on the flat. She was originally intending to increase her share ownership but we are thinking the better option is to pay off the mortgage. Clearly this is still going to raise possible deprivation of capital issues and I have looked at some of the relevant case law e.g. CJSA/1425/2004, CIS/1775/2007 and R(IS)13/94 – however, to date I have not found anything specific around paying off mortgages and the arguments around that. Can anyone point me to some relevant case law? Note - UC Full Service comes to her area in October so we are also juggling with that.

     
Gareth Morgan
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Is it shared ownership or shared equity?

     
Brian JB
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I think a problem here is that your member clearly knows what the capital limit is, as her ESA (IR) has already been stopped because of capital. Whatever she does now to deprive herself of the capital will make it very likely indeed that DWP will consider that a significant operative purpose of the deprivation is to secure entitlement to ESA(IR). On the UC front, only deprivation for the purpose of increasing or securing UC is a problem, so she may well get UC without too much of a problem. Have just had a similar case here and UC claim seems ok.

     
cobalt7
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Your member will clearly fall foul of the deprivation of capital rules if they pay off their mortgage.  In order to pay off debts without falling foul of the deprivation rules the debt must be ‘immediately repayable and legal debts capable of enforcement.’  If the mortgage for example has another 15 years to to be paid back paying and settling this debt early would fall foul of the deprivation rules.  As Universal Credit has the same £16,000 capital limit the same rules and principles will be applied. 
Paul Woodruff Cobalt Welfare Benefits Team

      [ Edited: 29 May 2018 at 09:47 am by cobalt7 ]
Paul_Treloar_AgeUK
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I don’t think you can say that they will “clearly” be caught by the deprivation rules.

For example, in R(IS) 15/96, using a criminal injuries compensation award to pay off part of a mortgage was not caught by para.51(1) as the SSAT found that the claimant’s intention had been to secure his future and to reduce the burden on the DSS for his mortgage interest payments. Unfortunately, can’t find copy of decision itself, but it has been followed elsewhere, see for eg CJSA/1395/2002 which notes:

The commissioner also states that many other decisions, such as CIS/40/89; CIS/2627/95; R(SB)40/85; and R(IS) 15/96, have accepted that ‘if a claimant has a choice, that does not necessarily preclude a conclusion that the securing of benefit or increased benefit is not a significant operative purpose at all’.

Given that SMI payments now stack up as a further loan on the claimant, one could argue that the motivation for paying down the mortgage whilst having capital available to do so becomes even stronger.

     
stuart
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Paul_Treloar_AgeUK - 29 May 2018 10:03 AM

I don’t think you can say that they will “clearly” be caught by the deprivation rules.

For example, in R(IS) 15/96, using a criminal injuries compensation award to pay off part of a mortgage was not caught by para.51(1) as the SSAT found that the claimant’s intention had been to secure his future and to reduce the burden on the DSS for his mortgage interest payments. Unfortunately, can’t find copy of decision itself….

Here’s the link to R(IS) 15/96 from the Tribunals Judiciary pre-2016 database.

     
Jon (CHDCA)
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AlanEquity - 25 May 2018 04:18 PM

She was originally intending to increase her share ownership but we are thinking the better option is to pay off the mortgage.

I would try to avoid discussing the best financial option. Quite apart from the risks of straying into financial advice, this sort of thing becomes a lot easier when you can separate out financial advice and benefits advice, and ideally keep them in that order. If a client has been decided on a particular course of action based on advice from their (independent) financial advisor, then we can advise on what are the benefits implications of that scenario.

     
Gareth Morgan
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Jon (CHDCA) - 30 May 2018 01:33 PM

I would try to avoid discussing the best financial option. Quite apart from the risks of straying into financial advice, this sort of thing becomes a lot easier when you can separate out financial advice and benefits advice, and ideally keep them in that order. If a client has been decided on a particular course of action based on advice from their (independent) financial advisor, then we can advise on what are the benefits implications of that scenario.

I understand why you’re saying that but there are complexities around shared ownership and shared equity that might be benefit linked.  If paying off the mortgage actually increases their share of the equity, then that’s one thing, although they may then lose the cheaper LMI support loan. A lot of people assume that shared ownership means shared equity but it doesn’t.  Failure to pay the rental element can mean that the house is lost and any capital paid is gone too.  If there’s any risk about future rent security then paying off some of the mortgage or staircasing may be a risk.

     
Paul_Treloar_AgeUK
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Jon (CHDCA) - 30 May 2018 01:33 PM
AlanEquity - 25 May 2018 04:18 PM

She was originally intending to increase her share ownership but we are thinking the better option is to pay off the mortgage.

I would try to avoid discussing the best financial option. Quite apart from the risks of straying into financial advice, this sort of thing becomes a lot easier when you can separate out financial advice and benefits advice, and ideally keep them in that order. If a client has been decided on a particular course of action based on advice from their (independent) financial advisor, then we can advise on what are the benefits implications of that scenario.

That’s a very good point actually.

     
Gareth Morgan
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Paul_Treloar_AgeUK - 30 May 2018 04:11 PM
Jon (CHDCA) - 30 May 2018 01:33 PM
AlanEquity - 25 May 2018 04:18 PM

She was originally intending to increase her share ownership but we are thinking the better option is to pay off the mortgage.

I would try to avoid discussing the best financial option. Quite apart from the risks of straying into financial advice, this sort of thing becomes a lot easier when you can separate out financial advice and benefits advice, and ideally keep them in that order. If a client has been decided on a particular course of action based on advice from their (independent) financial advisor, then we can advise on what are the benefits implications of that scenario.

That’s a very good point actually.

Actually, that may be a very bad point.

That’s the logic that often used for looking at the benefits impact of pensions or Equity Release schemes.  Yes, it’s easier to do it that way round but it often doesn’t provide the information that’s needed.  Unless you start off looking at the benefits first then it’s very easy to decide on an amount to take from a scheme that leaves you with the same, or less income, that you would have had from taking out several hundred pounds a month less income, or several thousand pounds in capital.  Those who have been bored over the years by my multi-coloured charts may have a vague recollection of this.

     
Paul_Treloar_AgeUK
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I’m not entirely sure that pension freedoms or equity release have much relevance to someone who has the money in their hands now and is wondering whether to (1) increase the shared ownership portion of their property (which will probably incur charges and does change the status of home ownership) or (2) pay off the existing mortgage which affects liabilty for any outstanding mortgage payments, as well as their rent, as you note above. And which will probably also have early repayment charges to boot.

And as the benefit position at this stage is that whatever they decide to do, assuming they go ahead and do either (1) or (2), is completley in the lap of the gods (or the DWP decision maker as I prefer to call them), then I think some financial advice about the pros and cons of option (1) or (2) might be a good idea.  Both options will probably come with associated charges, both things are financial decisions, rather than benefit decisions, and once some clarity has been gained about their relative merits, in terms of the client’s ability to remain living in their home in the longer term, then advising of how the impact of either might affect a benefit decision seems, to me, to be entirely sensible.

     
Gareth Morgan
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Paul_Treloar_AgeUK - 30 May 2018 04:51 PM

I’m not entirely sure that pension freedoms or equity release have much relevance.

Just examples.  The point is that doing the benefits advice last just lets you look at the impact.  Doing it first, lets you inform the choices; and that can make a lot of difference.

     
Brian JB
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Where I would view R(IS) 15/96 with a note of caution here is that it is different on the facts. What the Commissioner decided was that the tribunal had not erred in law in deciding that securing entitlement to IS was not a significant operative purpose behind the deprivation of capital. It is, to me, some way away from the facts here, where benefit has already been stopped because of the actual capital received from a benefits advice point of view, either use being contemplated inevitably brings with it a very strong likelihood that the client will be treated as possessing the capital used. The point I made earlier is that a determination of being treated as possessing notional capital for ESA(IR) now should not prevent a successful claim for UC later, because of how UC regulations are drafted

     
John Birks
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Where the cash is used to pay down a debt on a owner occupier property than surely there’s an argument that the claimant still has the capital except that it is treated differently due to the benefit rules?

Unless someone wants to argue the capital is no longer in the claimants possession?

     
Paul_Treloar_AgeUK
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Brian JB - 31 May 2018 10:32 AM

Where I would view R(IS) 15/96 with a note of caution here is that it is different on the facts. What the Commissioner decided was that the tribunal had not erred in law in deciding that securing entitlement to IS was not a significant operative purpose behind the deprivation of capital. It is, to me, some way away from the facts here, where benefit has already been stopped because of the actual capital received from a benefits advice point of view, either use being contemplated inevitably brings with it a very strong likelihood that the client will be treated as possessing the capital used. The point I made earlier is that a determination of being treated as possessing notional capital for ESA(IR) now should not prevent a successful claim for UC later, because of how UC regulations are drafted

I don’t disagree but it is the case that the decision emphasises that whilst someone may be found to have deprived themselves of capital, the test is to decide what their significant operative purpose was in doing so. Securing entitlement to benefit may be one aspect but how to balance that against securing a long-term safe and stable home? As with all such cases, they very much depend on the facts and what the client says, which is what makes them tricky to advise upon.

John Birks - 31 May 2018 10:50 AM

Where the cash is used to pay down a debt on a owner occupier property than surely there’s an argument that the claimant still has the capital except that it is treated differently due to the benefit rules?

Unless someone wants to argue the capital is no longer in the claimants possession?

ESA regs sch.9, para.1 CAPITAL TO BE DISREGARDED

1.  The dwelling occupied as the home but, notwithstanding regulation 83 (calculation of income and capital of members of claimant’s family and of a polygamous marriage), only one dwelling is to be disregarded under this paragraph.

     
John Birks
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Not sure if that’s a rebuttal or an agreement?

In case I haven’t made myself clear - the argument is that there can be no deprivation where you still have the capital - the matter is solely that that said capital now falls to be disregarded.