Exceptions outside of Schedule 10 UC? 

Hello,

Can anyone give any case(s) where capital was disregarded by the DWP or the FtT despite not fitting into any of the provisions of Schedule 10 of UC?

Cl has a loan from family and some investment in his name. He is requesting the loan amount be deducted for the purposes of calculating his capital, which would bring is well below £6k limit. Nothing in Schedule 10 discusses this. Any other provision we could rely on or any case where deductions outside of Schedule 10 were made?

Thank you very much.

You can’t just make up disregards.

What is the actual nature of this asset? If its money that’s been loaned to him by a family member, can’t he just pay it back?

Hi Elliot,

Thank you for your reply.

He has an ISA and some shares of about £8K (after deductions). He doesn’t have much in the bank (less than £1k). Shouldn’t the loan be offset for the calculations of capital under 49(1)(b) ‘any encumbrances’ of the UC?

Is there any relevant case law for 49(1)(b) that could be used here? The family is not in a rush to get the money back given his circumstances, which is a flexible option compared to financial institutions and loan sharks who would chase a person irrespective of their situation. If the DWP calculates it with that option, offsetting under Sch. 10 would not matter as his capital would be much under 6K. So, any case for 49(1)(b) would be helpful if you know of any.

Obviously disregard under Sch. 10 applies to amounts which does not have any encumbrances or after all encumbrances have been considered and applied under 49(1)(b). Do you have anything to support this?

Thank you for your help.

Sorry, I am getting a bit lost.

I don’t understand what the “loan” is. Do you mean that the client has money sitting in his bank which has been loaned to him by a family member? Or are you suggesting that his actual assets ought to be offset by money which he owes to family members but doesn’t have?

In any case, reg 49 isn’t relevant. An “encumbrance” in this context refers to secured debt - so mainly it is going to apply to someone who has a mortgage on their house. The value of the house is the value net of the mortgage. It is not just a general netting of a claimant’s assets and liabilities.

Why not just pay back the amount of the “loan” which exceeds the £6k threshold?

Why is he sitting on £8k which I am assuming you are saying constitutes the “loan”?

Elliot:

I wish to argue that the loan from family should be offset for calculating the capital. Could you give me something specific where they define and/or describe ‘encumbrance’? I have not been able to find anything. It is a loosely worded provision and says ‘any encumbrances’. ‘Any’ meaning more than just mortgages. I could not find any specific explanation (inclusive or exclusive) to the words ‘any’ or ‘encumbrances’ or ‘any encumbrances’.

Paul:

The money is invested, and he wishes to pay back once he gets a job. It is better to keep it invested rather than break it and lose much of it (about 25-30% of the ISA). Plus, the family is not in a rush to ask for it back since he is not doing well financially right now. He borrowed the amount some time ago to pay for necessary bills towards lawyer, immigration costs, education and living costs etc. The DWP has classed it as a loan in their MR but obviously not disregarded it under Sch. 10. My argument is that classification disregard occurs on what remains after Reg. 49 has been applied. 

I know that money from family is not counted as income, but those cases are usually in much lesser amount. The amount of loan is near about £8-10k in this case. There is nothing I could find which discusses on either loan or loan from family. The regulations seem silent on this issue, thus creating a vacuum in law for this particular case. I am trying to draw an analogy with ‘any encumbrances’ and potentially trying to expand/include on a not so well-defined regulation. Hence, I am reaching out to more experienced advisors to see if there is anything they have come across.

Thank you for your help.

Nandan - 14 June 2023 03:04 PM

He borrowed the amount some time ago to pay for necessary bills towards lawyer, immigration costs, education and living costs etc.

But he hasn’t spent it on these?

I think he’s on a sticky wicket to say the least. This is from the ADM Chapter H1: Capital

How a person gets a beneficial interest in capital
H1081 People can get a beneficial interest in capital by
1. saving up their income such as money in a bank account
2. using their money to buy capital such as premium bonds
3. using money which has been lent to them, such as a mortgage, to buy capital1

I know guidance isn’t the law and I can’t find the Commissioner’s Decision referenced either so not sure how relevant the facts of that one are to your client. However, you say he says he has had money leant to him by family and he has used that to invest in an ISA so arguably he has bought capital as reference here.

Further, there is also this guidance:

H1074 Legal owners who are not the beneficial owners of capital are holding that capital on trust for the beneficial owners1. They cannot use the capital for themselves. It should be used for the beneficial owners.

Your client is using the money for themselves as he has invested it in an ISA and will be receiving interest payments as a result.

I think the term “loan” is unhelpful here because we are looking at his assets, not his debts.

My understanding is that he has about £8k in a variety of funds and owes his family about £8-10k on account of a loan.

The debt he owes is not relevant to the capital assessment and his capital is therefore £8k.

“Encumbrance” is not a vague term. Its well-established legal terminology. Broadly, its referring to proprietary rights in the asset in question. A charge or a mortgage is an “encumbrance” because it restricts the ability of the owner to deal with it freely. A right of way, a tenancy or a restrictive covenant or any other manner of things could be encumbrances too, but that is less likely to matter in this context.

The money he has is not subject to any encumbrance insofar as the debt is concerned because it is just general unsecured debt. The creditor has no specific rights as against any specific asset that he might own from time to time. He could empty out his ISA and put it into a savings account or spend it on a car and the creditors would not have a right to complain. It needs to be recalled that the question posed by reg 49 is not the valuation of the person’s overall net worth but of the specific asset and there is no specific encumbered asset here.

There is no disregard in this situation, largely because it is wholly reasonable to expect him to spend his own money on paying for his living costs before relying on state support. There is nothing stopping him doing so other than his concern that he will get a better return on investment were he to leave it alone. That is not a compelling reason for it to be disregarded. The disregards are broadly directed at circumstances where a person cannot (or cannot reasonably) access the money such that its reasonable to ignore it, or where there are special compelling circumstances such as PI payouts.

Usually the only kind of argument that you have in these kinds of cases would be where it can be established that money is held under a trust. For example, we could imagine a situation where a person has an ISA in their name but, it is claimed, half of the money in it actually belongs to their brother and it has just been thought convenient to open one and share it rather than two separately. Trust law is different in Scotland to England, but nothing that you are saying about this situation suggests that it would apply.

Paul_Treloar_AgeUK - 14 June 2023 04:46 PM

I know guidance isn’t the law and I can’t find the Commissioner’s Decision referenced

From our Social Security Law encyclopaedia

R(IS) 8/92

Formerly CIS/379/1991

Capital - shares in a company - whether claimant’s position “analogous to that of ... partner in the business” - whether minority holding of shares subject to pre-emptive rights has a value

The claimant had been an executive director in his family’s company. On resigning his office he received compensation of £50,000 plus a fixed-term loan of £50,000. He held shares in the company, some of which he sold using the proceeds to pay debts and reduce his mortgage. The remaining shares were subject to an agreement whereby the claimant undertook not to sell them, save in specific circumstances, nor pledge them as security. The company agreed to release him from restriction, after a specified date, in respect of 3,000 of the shares which could be used to secure a loan not exceeding £50,000.

Mainly concerned with whether particular shares had a value or fell to be ignored because of the conditions under which they were held.

What everyone else has said.

Also, assuming the client can actually prove the debt (i.e. can establish the money from his family was actually a loan rather than a bare gift) he can either cash in the shares and ISA and repay the debt or - and this might depend on the particular terms of the shares and ISA - simply transfer their ownership to the family member who made the loan by way of repayment. Fortunately, for UC at least, so long as he can show there is in fact a debt, there’s no possibility of his being held to have deprived himself of capital if he does that.

Time to spit or cough.