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Treatment of gratuitous care payments - Appeal
I have a claimant that receives a gratuitous care payment for looking after his child. This forms part of a compensation claim. The payment is non-taxable and therefore isn’t taken into account for Tax Credits. However, he has now claimed UC and has been refused as the money has been treated as income. They have asked me to appeal and I’m looking at possible arguments.
Reg 66 includes:
(m)income that does not fall within sub-paragraphs [F8(a) to (la)] and is taxable under Part 5 of the Income Tax (Trading and Other Income) Act 2005 F9(miscellaneous income).
As this is non-taxable, is it excluded? Does anyone have any others ideas for appealing this or have they done such appeals already?
Does anyone have any views on this? Any help greatly appreciated.
Can I just try and nail down what exactly this payment is?
The child has been severely injured and has been made a personal injury award. The award is held on trust for the child. The parents are providing “gratuitous care” for the child and the trust has authorised regular payments to the parents in recognition of the care provided.
Is that what we are talking about?
In which case, wouldn’t it be unearned income under reg 66(j) unless the disregard from reg 75 applies?
Not an expert and I’ve never had to run an appeal on this basis but I’d broadly agree with you. Unearned income under UC is only counted if it fits into one of the many categories listed under Regulation 66 (1). Assuming the payment doesn’t fit any of the those criteria my view would be that it doesn’t count as income for the purposes of Universal Credit and therefore should be ignored. That being said is it possible they might be trying to argue that it’s covered by (j) income from a trust?
Yes that’s what the payment is for. It isn’t a trust as such as it is held under the Court of Protection with a deputy. So I was wondering if there was any mileage in arguing that as it isn’t listed specifically in regulation 66, it should be disregarded under 75 as it is non-taxable?
CPAG p.128 suggests that both the capital value of and any income from a PI compensation payment held in trust are disregarded.
CPAG p.128 suggests that both the capital value of and any income from a PI compensation payment held in trust are disregarded.
Isn’t that just for the beneficiary of a trust? This is a payment to the parents of the child who is the beneficiary, although this isn’t a trust as such. Payments like this were disregarded for tax credits as they were non-taxable but UC isn’t as clear.
Children’s income is always ignored.
The income isn’t for the child, it’s for the father as a payment for looking after the child (a type of carer’s allowance). It’s just being paid from the child’s compensation via the court appointed deputy. UC are treating the payment as income.
Are they deducting 63% or 100%?
Not an expert and I’ve never had to run an appeal on this basis but I’d broadly agree with you. Unearned income under UC is only counted if it fits into one of the many categories listed under Regulation 66 (1). Assuming the payment doesn’t fit any of the those criteria my view would be that it doesn’t count as income for the purposes of Universal Credit and therefore should be ignored. That being said is it possible they might be trying to argue that it’s covered by (j) income from a trust?
Having looked at the reg’s now and read the enquiry properly, I think you’re correct. He’s receiving income from a trust, it’s not able to be disregarded under disregards as far as I can see, so it’s taken into account as unearned income.
I’m not sure I agree. Although 66(1)(j) simply says “income from a trust”, I don’t think that would cover these sort of payments. I think it only includes income as a beneficiary of the trust. Another example is if a trust employs someone, that income certainly gets included as earned income, and not as income from a trust, despite being “income from a trust”.
Another place where it appears DWP assume 66(1)(j) means income as a beneficiary is that income from a charitable trust is not included as income for UC (charitable trusts do not have individual “beneficiaries”).
It is income from a trust though. The rules on when you are the direct beneficiary of a trust are in the disregards in reg.75, so unless these apply (which they don’t appear to), then I can’t see how you can argue that the person concerned claiming UC isn’t someone receiving income from a trust.
66.—(1) A person’s unearned income is any of their income, including income the person is treated as having by virtue of regulation 74 (notional unearned income), falling within the following descriptions—
(j)income from a trust, unless disregarded under regulation 75 (compensation for personal injury) or 76 (special schemes for compensation);
Unless you try to read across from reg.75 that as the disregards all only apply where that person is also the beneficiary of the trust. And I think that’s slightly difficult as reg.76 does have some additional disregards for people directly related to the beneficiary of the trust and allow for additional disregards for them when the beneficiary dies.
There’s no definition of what is meant by a trust either in this context.
Hmm, I see what you’re saying. Will have to think about this some more.
Regs in IS etc are very specific in their disregards of both trusts and court of protection. However, UC doesn’t mention CoP at all. So, should the DWP be treating this as a trust? If there argument is CoP should be treated in exactly the same way that a trust is (something I’ve argued for in the past), then I can’t see any hope of winning an appeal. However, this must go to appeal, so I want to ensure I give it the best possible chance of winning.
Ok - so has the question become “do funds paid into and held by the court for the benefit of a child count as ‘a trust’ for benefit purposes?”.
If the answer is “no”, then none of the sub-paragraphs in reg 66 appear to apply and it isn’t income.
If the answer is “yes” then reg 66(1)(j) seems to apply and neither disregard seems to apply so it is income.
I don’t know if there is a definitive answer to that question. My initial reaction is that if the funds are held in court for the benefit of someone else, that certainly sounds like a trust - and this seems to be the direction that R(IS) 9/04 is pointing, but I don’t think its necessarily impossible to argue that the funds are held on an entirely different non-trust basis.
I also wonder if there is some sort of RR human rights argument based on the difference of treatment between a disabled adult beneficiary of the trust and a disabled child in an otherwise identical position; but I’m sure that is something that needs to be thought through more carefully..
Ok - so has the question become “do funds paid into and held by the court for the benefit of a child count as ‘a trust’ for benefit purposes?”.
If the answer is “no”, then none of the sub-paragraphs in reg 66 appear to apply and it isn’t income.
If the answer is “yes” then reg 66(1)(j) seems to apply and neither disregard seems to apply so it is income.I don’t know if there is a definitive answer to that question. My initial reaction is that if the funds are held in court for the benefit of someone else, that certainly sounds like a trust - and this seems to be the direction that R(IS) 9/04 is pointing, but I don’t think its necessarily impossible to argue that the funds are held on an entirely different non-trust basis.
I also wonder if there is some sort of RR human rights argument based on the difference of treatment between a disabled adult beneficiary of the trust and a disabled child in an otherwise identical position; but I’m sure that is something that needs to be thought through more carefully..
I think (for what it’s worth) that the answer to Elliot’s question is “no”. Money controlled by a deputy under the Court of Protection’s powers is quite different to money held in a trust. I can’t point to an authority which says that in terms but it seems to me to be implicit in the way reg 75 is drafted. Reg 75(4) excludes sums in trusts. Reg 75(5) excludes sums administered by the court. If they are the same thing there would be no need for separate paragraphs.
Yes but that leaves us then in a sort of infinite loop, because reg 75 refers to payments being “disregarded in the calculation of the person’s unearned income”, but if you are relying on reg 75 to demonstrate that the payments were not “unearned income” in the first place so that disregarding them is redundant, then that aspect of of the provision is otiose and that can’t have been the intention. And so on until you eventually just start screaming.
In fairness, I think it is something that needs to be answered by reference to broader principles rather than an individual statute, as if it is decided as a matter of law that the funds are held on trust then this would have much broader implications. It’s the sort of thing that makes me wish I still had access to Westlaw.
I’m not sure it is a loop. For the payments to be taken into account as unearned income for UC they must be of a type listed in reg 66(1). Which sub-paragraph could they fall under? If the money from which the payments come is not in a trust then they don’t fall under (j). If they’re not taxable they don’t fall under (m). There isn’t anything else, is there? For UC purposes they are invisible, rather like payments for board and lodging by lodgers.
So it’s back to your question: is this money in a trust? That is, as you say, a matter of general law rather than UC law, but I just think the way reg 75 has been drafted means that the drafter though there is a distinction between trusts and sums administered by a deputy under the Court of Protection.
Thank you for all the helpful replies. This will be a good test case for me as I deal with a lot of CoP claims. If it wins, I think the UC regs will be redrafted pretty quickly.
I wonder if its the sort of thing where you could get some help from Advocate (i.e. the Bar Pro Bono Unit) on addressing the trust law aspect.
I’m not sure it is a loop. For the payments to be taken into account as unearned income for UC they must be of a type listed in reg 66(1). Which sub-paragraph could they fall under? If the money from which the payments come is not in a trust then they don’t fall under (j). If they’re not taxable they don’t fall under (m). There isn’t anything else, is there? For UC purposes they are invisible, rather like payments for board and lodging by lodgers.
So it’s back to your question: is this money in a trust? That is, as you say, a matter of general law rather than UC law, but I just think the way reg 75 has been drafted means that the drafter though there is a distinction between trusts and sums administered by a deputy under the Court of Protection.
Isn’t Elliot’s issue why Reg 75(5) is needed at all, if it isn’t considered a trust?
But I suppose they could possibly be taxable, so that could be why.
While funds administered by the COP under a deputy are not usually part of a trust this does not imply that one automatically precludes the other. I agree with Eliot on getting specialist advice on this point.
https://www.no5.com/media/publications/private-trusts-and-the-court-of-protection/
A quick update. I requested an MR and argued that the money should be disregarded as it isn’t specified in regulation 66. The decision was changed and the income is now disregarded. Thanks for everyone’s input.
Good work Phil, glad you got a good result despite my scepticism.