Muslim family - deprivation of capital

Hiho,

Quick question regarding an ongoing case.

A muslim client of mine has had a decision stating they have deprived themselves of capital.

The background is as follows. The client was helping a family member to purchase a property. A third family member was willing to loan the required capital to the person wanting to purchase the house, but they were concerned the money would not be paid back. In order to ensure the loan was repaid, the client (PC claimant) had the property put in her name and transferred ownership of the property back to the person buying the house once the money was repaid.

there’s the obvious argument that it was just an internal family matter and due to the fact muslim’s cannot be liable for interest then they purchased a property in a manner keeping with their religious practices. my problem is the person who is appealing the decision wasnt actually part of the transaction other than as a sort of guarantor.

part of me thinks its a simple(ish) argument to say that she wasn’t depriving herself of capital to gain access to means-tested benefits as she was already in receipt of it when the former transactions took place.

am i just over-complicating it?

cheers for any thoughts

-David

If your client had decided to sell the house while it was in his or her name would they have been entitled to do so and would they have made any profit on it, it can only be valued as capital if it was sellable and the value given to the capital is after any mortgage or loan secured on it has been paid off plus 10% for fees (see 19b) PC Regs)

Hi David,

Sounds very confusing.  But sounds like a trust case and beneficial ownership of capital.

If you can establish (on balance) that the client never held any capital before or after the transaction and was merely a vessel for this transaction you will have good chance of challenging the decision.

You may run into an ‘equitable estoppel’ scenario where you may have to prove that your client albeit the legal owner had no vested financial interest in the property.

Client’s account details and audit trails of finances for all parties would assist in proving this unusual transaction.

Unfortunately, client’s often do unconventional things and as long as you can break down every step and follow the money you should be fine. 

Ariadne, in one of her final posts, posted a document on trust and fiduciary duties of trustees which may assist.

Hope that helps

M

Cheers to pete and mnm for their responses. :)

I’ve sent a letter to a client asking for a plethora of details concerning the appeal. The problem I may have is that the client transferred ownership of the property back to her daughter following the house becoming an issue for their claim for benefits. The client always stated in previous requests for information that she was holding the property as some sort of guarantee to ensure the debt was repaid.

Now I just need to show that the daughter repaid a substantial mortgage in under 1.5 years.

Again, cheers for the replies.

-David

You might have to argue (in the likely event that the loan has not been fully repaid) that in fact your client has breached the terms of the trust agreement they had with the person who stumped up the money.  What’s this person’s take on it?  Do they know?

I’d be well annoyed if I was the ‘moneyman’ in this arrangement and the arrangements I’d made to secure my money (making sure that someone I trusted would hand back the rights to sell the property in the event of default) had been breached.

Families eh?

My limited knowledge of this is as follows.

Take a very simple scenario.

A loans money to C to buy a property.  Therefore, A has no beneficial interest in the property and thus there is no Trust as between A and C, simply a debt which A can sue for.  B takes legal ownership of the property that C pays for.  Thus B holds it on Trust for C.  B has no beneficial interest in the property so has no capital.  If B has no capital then she cannot deprive herself of something she does not possess.

What complicates the real case here is what exactly was the relationship, understanding and agreement primarily between A and B, and A and C, from the outset, and was anything put in writing?  It’s possible, or even likely, that there was no Trust as between A and B but if there was, B would be a Trustee for A.  In the final analysis I would think that the Pension Service’s decision is wrong.  I would strongly advise your client to get a solicitor’s opinion as to the exact relationships between A, B and C in contract and debt and Trusts and their respective fiduciary duties to each other, as this could get very tricky.