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Deprivation of capital.
Hi All
Client is about to realise 70k as his share of an inherited property. He would like to use this to buy his home through the RTB scheme.
He gets UC and CTS.
I can see that UC includes this provision
H1796 People are not treated as having capital of which they have deprived themselves if
1. it reduces or pays a debt owed by the person or
2. they purchase goods and services and that expenditure was reasonable in the circumstances of that
person’s case
Does anyone know of any case law or have any experience of what might constitute ‘reasonable’ in these circumstances?
Thanks in advance.
Why does he want to buy it?
Also, regardless, unless he is already a significant way along the RTB process, it’s very likely he is going to receive the capital well in advance (perhaps 9-12 months) of his being able to complete the purchase. During that period, he isn’t going to be entitled to to UC - because he will have capital of £70k. He should be advised of that.
Why does he want to buy it?
I think because he’s sees this as an investment rather than just using the money for everyday stuff.
Also, regardless, unless he is already a significant way along the RTB process, it’s very likely he is going to receive the capital well in advance (perhaps 9-12 months) of his being able to complete the purchase. During that period, he isn’t going to be entitled to to UC - because he will have capital of £70k. He should be advised of that.
Good point. I will definitely mention that.
He will still need to know how UC will treat the spending of the capital when he comes to reclaim.
I know we cannot give a definitive answer in these cases but just wondering about this particular UC provision as I’ve not had to consider it before.
My gut feeling is that he’s on a sticky wicket but I could be completely wrong.
I think one difficulty is that reg. 50 (2)(b) UC regs. is ‘new’ - there wasn’t any provision worded in the same way in the IS/ESA/JSA regs. etc. I’ve said ‘new’ because the concept of whether expenditure was ‘reasonable’ does exist in much of the caselaw around deprivation - see for example R(H) 1/06 where it was decided that (because the expenditure will often have occurred over a considerable period and been on different things) it is necessary to go through the various items and decide a) what was disposed of over and above what it was reasonable to spend on general expenditure and b) what the person’s intention was at the time and whether this included any intention to claim, retain or increase benefit entitlement.
In terms of caselaw, for parallel situations you have R (IS) 13/94 - this was a bit of an own goal for the appellant. She’d been in receipt of IS, but it then came to light she had excess capital so IS stopped. She then used the capital to purchase her council house and reclaimed IS. The appeal to the the tribunal was about whether the amount of IS awarded should be restricted because she was already in receipt of IS when she purchased her home. When the case got to Commissioners, it was decided that it should not be restricted because the IS claim could not actually start until the date after she had capital below the limit - that being the same date on which the purchase was completed. The day after the purchase, the capital was below the limit, so that was the date the claim started - and on that date, she actually owned the property. So far so good - but the Commissioner decided the tribunal also erred in law by not considering whether the purchase of her home under RTB might not constitute deliberate deprivation/notional capital. So it’s certainly possible that it might be deliberate deprivation.
Isn’t there an issue in that purchase of land is neither a good nor a service on a conventional view?
Yes, I think you are probably right.
From what I can see, ‘goods’ need to be movable?
@ Elliot - That too.
Even if the claimant doesn’t meet the ‘reasonable purchase’ or ‘debt’ exceptions, the decision-maker still needs to be satisfied that they’ve “deprived themselves for the purpose of securing entitlement”.
There was an old discussion on here somewhere along the lines of:
the rule can’t apply, because purchasing a house isn’t depriving yourself of anything, it’s just converting your capital from one form to another. A house is still capital under the benefit regime, it just happens to be disregarded capital. So you haven’t disposed of any capital, if anything its value is likely to increase.
I don’t know if anyone has seriously tested that proposition.
edit: sorry this was all very obvious!
[ Edited: 8 Oct 2023 at 06:55 pm by JonUCN ]Though I suppose (risking embarrassing myself because I’m not really qualified to give a view on property/housing law) there could be an argument that RTB does not involve the purchase of ‘land’ in one sense - the land on which the flat stands will remain the property of the freeholder and what the buyer will be purchasing is a lease of the flat? - i.e. just paying their rent for a very long period up front?
Nice try but not a runner I’m afraid. RTB will involve the acquisition of either a freehold or leasehold estate in the land which is a form of ownership of it. ‘Goods’ are generally understood as being non-land chattels.
It is not impossible that the UC Regs could be interpreted as using a broader meaning of ‘goods’ which is inclusive of land purchases.
Nice try but not a runner I’m afraid.
Yes, well, that’s why I did give that caveat I’m no expert. ;)
There was an old discussion on here somewhere along the lines of:
the rule can’t apply, because purchasing a house isn’t depriving yourself of anything, it’s just converting your capital from one form to another. A house is still capital under the benefit regime, it just happens to be disregarded capital. So you haven’t disposed of any capital, if anything its value is likely to increase.
I don’t know if anyone has seriously tested that proposition.
It’s been tested (repeatedly) in the context of disposing of capital in order to purchase other forms of capital which are disregarded - e.g. annuities. And the caselaw on those cases is absolutely clear; such a purchase absolutely can involve/result in deliberate deprivation. What is crucial is the claimant’s purpose or intention when making the purchase/disposing of the capital - if that purpose is the ‘forbidden purpose’ then they are liable to be caught by the notional capital rules even if what was purchased is something that is subject to a capital disregard. So it really makes no difference what specific type of disregarded capital is purchased - notional capital can still be in play.
I think one difficulty is that reg. 50 (2)(b) UC regs. is ‘new’ - there wasn’t any provision worded in the same way in the IS/ESA/JSA regs. etc. I’ve said ‘new’ because the concept of whether expenditure was ‘reasonable’ does exist in much of the caselaw around deprivation - see for example R(H) 1/06 where it was decided that (because the expenditure will often have occurred over a considerable period and been on different things) it is necessary to go through the various items and decide a) what was disposed of over and above what it was reasonable to spend on general expenditure and b) what the person’s intention was at the time and whether this included any intention to claim, retain or increase benefit entitlement.
In terms of caselaw, for parallel situations you have R (IS) 13/94 - this was a bit of an own goal for the appellant. She’d been in receipt of IS, but it then came to light she had excess capital so IS stopped. She then used the capital to purchase her council house and reclaimed IS. The appeal to the the tribunal was about whether the amount of IS awarded should be restricted because she was already in receipt of IS when she purchased her home. When the case got to Commissioners, it was decided that it should not be restricted because the IS claim could not actually start until the date after she had capital below the limit - that being the same date on which the purchase was completed. The day after the purchase, the capital was below the limit, so that was the date the claim started - and on that date, she actually owned the property. So far so good - but the Commissioner decided the tribunal also erred in law by not considering whether the purchase of her home under RTB might not constitute deliberate deprivation/notional capital. So it’s certainly possible that it might be deliberate deprivation.
That’s the case I was thinking about in that other thread on deprivation, thanks for the reminder cos I couldn’t place it.