ESA - DEPRIVATION OF CAPITAL

I’d say that the lack of case law should be a red flag.

Are we really thinking no one since 1985 or so has been in receipt of a Means Tested Benefit and paid off or reduced a mortgage by an amount equal or more than the specified capital limit? In 33yrs?

I’d argue that the SB regs are different to the IS regs and reading into what words mean is very useful only in the context of the regulations under consideration.

You can’t deny yourself Actual Capital by transferring ‘a class of’  Actual Capital’ to another ‘class of.’

It remains Actual Capital. It’s disregarded as long as you’re living in it.

For it to be Notional Capital under the IS regs the interpretation has to be that a claimant deprived themselves of the capital asset (cash) by transferring this to a third party and therefore having both ‘Notional Cash’ and Actual Capital that falls to be disregarded as the home. It can’t be two things at once.

There may be cases where the facts are different but in this one the matter doesn’t seem to be too contentious. 

The decision in Jones v Secretary of State for Work and Pensions is helpful aka The Forbidden Purpose - copy attached

41. I record that I am not presently persuaded that a debtor who repays a debt repayable on demand but which has not in fact been demanded, e.g. a bank overdraft, must by virtue of Regulation 51 necessarily be treated as possessing that sum as capital.

52. In my judgment, it is a question of fact whether a person acquiring a personal possession (para 10 of Schedule 10) or depriving himself of capital (Regulation 51(1)) does so for the Forbidden Purpose. If the payment is made in satisfaction of a debt, the fact-finder will not usually conclude that, in making the payment, the debtor’s purpose was to secure an entitlement to income support, rather than simply to repay the debt.

54. As Mr Broatch points out, this passage addresses the legal nature of the debt, rather than the particular creditor’s subjective intention in relation to its enforcement. If an immediately repayable debt is repaid, the fact-finder will almost always conclude that the payment was not made for the Forbidden Purpose. But I cannot agree with Mr Commissioner Rice that, even in such a case, the payment “cannot be for the purpose of securing supplementary benefit or any increase thereof”. It will be a question of fact in every case. Thus, for example, there might be evidence that the debtor thought that the creditor would not call in an immediately repayable debt for some time, and that he repaid the loan when he did for the purpose of becoming entitled to income support. Conversely, and perhaps more realistically, even if the debt is not immediately repayable, the repayment of it by a debtor will not necessarily have been made for the forbidden purpose. This is the point made by Mr Commissioner Rice at paragraphs 14 and 15, and I agree with him. As I say, it is a question of fact in every case.

John Birks - 01 June 2018 09:04 AM

I’ve seen more than one capital decision in my time where the DM has accepted that a house purchase was not deprivation of income.

Do you mean income or capital? If income, then deprivation of income is, properly speaking, almost always a failure to apply for income that would be payable on application. If my income, say from earnings, is £1500 pcm and I am paying £400 to rent my home, my disposable income is £1100 pcm. If I then decide to purchase a property to live in and the mortgage is £600 pcm, my disposable income becomes £900 pcm. But my income - £1500 pcm - remains unchanged.

It would be wrong to tell anyone there is only one possible outcome or even how to proceed. The risk is entirely the claimants.

True - but they need to be able to make an informed decision. That is why they have come to us for advice.

In the case of the OP the money is sufficient to deny benefit in any case so putting it into the property would not seem to be an unreasonable approach.

Perhaps not ‘unreasonable’ in the ordinary sense, but not necessarily risk free.

£125k is a not insignificant sum. It is almost certainly, other things being equal, sufficient for the claimant to both service their mortgage and meet their daily living expenses for some years to come. If they use that £125k to purchase the remainder of the shared ownership property in the belief that they cannot possibly be held to have deprived themselves of the capital as they still possess it in the form of outright ownership of their disregarded home, they may be in for a nasty shock; a notional capital decision which leaves them with no entitlement to benefit whilst the £125k is no longer available to live on.

What I would say is that the decision relied upon is so unlike the circumstances described in the OP as it’s of no help.

Resources are very different to capital - Resources were both income and capital combined into ‘resources.’

http://www.legislation.gov.uk/uksi/1981/1527/pdfs/uksi_19811527_en.pdf

The current legislation has capital and income as separate concepts.

True - but the legislation now provides for both notional capital and notional income.

The ratio of the case has to be deduced from its facts - these are reasons the court gave for reaching its decision based on material facts. The ratio of a case is binding on inferior courts, by precedent…....

........As it’s so materially different to the matter under consideration (the OP) and the commissioner was considering resources - i.e. (reg 3 - resources include capital and income) then there is reason not to rely wholly on this as ‘good’ law.

No. This is the ratio;

8. At paragraph 21 of the last mentioned decision the Commissioner
expressed the view that the word “deprive” is an ordinary English word
whose meaning is not a question of law. In my judgment it does not change
its meaning by reference to the consequences of deprivation. It is in my
judgment perfectly proper for an adjudication officer or tribunal to conclude
that a person has deprived himself of a resource if as the result of his
own act he ceases 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 up in living
frugally or prodigally, or to pay 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 purposes of supplementary
benefit.

None of that depends on the particular facts of the case. It is a statement of general principle. The fact the word ‘resource’ is used and the legislation now distinguishes between capital and income is irrelevant;  it is plain that what Commissioner Monroe was saying applied to both capital and income. It doesn’t cease to apply because the legislation now deals with the two separately - that’s all it does, it hasn’t redefined or changed the meaning of the term capital.

To pursue the current logic then any payment made on a mortgage (save for those specified) would be deprivation whether £100, £1000, £10,000 or £100,000+.

Deprivation in the sense that the person no longer possesses the money, yes. The question, as always, is whether it was deprivation with the significant operative purpose of securing, retaining or increasing entitlement to benefit.

And to add, none of the passages from Jones that you have quoted support the view that a person who converts an asset or capital held in one form into another which is disregarded in the regulations cannot (by virtue of the disregard) be found to have deliberately deprived themselves of capital. The emphasis is on the question of their purpose in doing so.

I’ve laid out my argument and it’s there for anyone to refer to.

But one question: How do you square the problem of having both Notional and Actual capital at the same time?

Gareth Morgan - 30 May 2018 05:48 PM

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.

It’s a good point. But I still find it tricky to navigate around deprivation issues, where the more you try to put someone in a position to make an informed choice, the more likely they are to be found to have intentionally deprived themselves.

In practice it’s a bit moot, as we can’t control at what stage people come to us for advice, and it’s not like we turn people away who haven’t had financial advice first.