i have received a query from a customer concerning whether he would be entitled to HB/CTB.

the customer , a working age client who is in receipt of incapacity benefit,jointly owns a property with his former partner which is currently tenanted (the tenant is not related to the client) and he is wondering if he would qualify to claim HB/CTB in respect of the rented property he is currently occupied.

The equity value of the property he jointly owned is about £50000.

how is rental income from a property be assessed?

any help will be much appreciated.

Tue 10-Feb-09 12:24 PM by Tony Bowman

"how is rental income from a property be assessed?"

See page 865 of this year's CPAG handbook.

Calcuation of capital will most likely be a difficult issue. See the commentary to regulation 49 IS regs (Vol 2 CPAG's social security legislation), which mirrors reg 47 HB regs, for a detailed analysis of the problem.

Thanks Tony.

John Zebedee's guide to HB/CTB suggests something different. the text book says that for working age claimant;
if the 2nd property is not a disregarded property as per shcedule 6 then:

take the amount of the rental income for an appropriate period.
disregard any payments towards mortgage.
count the balance as unearned incoome ( a weekly figure)

if the 2nd property is a non-disregarded property then:

take the amount of the rental income for an appropriate period.
disregard any outgoings in respect of the lettings such as payment towards mortgage, letting agent's fees , tax etc.
the balance is taken into account in the assessment of capital.

HB reg 46(4) & schedule 5 para 17(1).

The book doesn't clarify what constitues an appropriate period nor give an example on what it mean by taking the balance into account in the assessment of capital.

Does it mean the equity value on the 2nd property will be ignored? rather only the net rental income over an appropriate period willbe subject to the tariff income rules?

I am so confused. any clarity on this issue will be much appreciated.

We don't have Zebedee and Ward, but I don't think the information you posted is inconsistent with that given in the CPAG handbook.

I haven't researched this significantly but would suggest the phrase 'appropriate period' probably refers to the rental payment period (e.g. weekly, monthly, etc).

My comment regarding calculation capital is only applicable to the market value of the capital assett (the house) if it's not disregarded and not the rent payments.

Generally, the usual position for second properties rented out is as follows. If the claimant does not intend to move into that property and thus cannot benefit from one of the disregards in paragraph 6, or none of the other disregards apply (apart from paragraph 7, which I will come back to), then any beneficial interest that the claimant has in the property counts as capital.

However, the interest of the tenant needs to be determined. If the tenant has some decent security of tenure, such as a tenancy for life (or arguably a fixed term or assured non-short hold tenancy) then the claimant will have a reversionary interest in the property and the capital value will be disregarded under paragraph 7.

Any rental income from property which is not disregarded or only disregarded under paragraph 7, will be taken into account as capital.

Nevin

are you referring to paragraph 7 of schedule 6 of the HB 2006 regs?

Yes it is but I should have made it clearer that the disregard doesn’t apply if the claimant, rather than a previous owner, granted the lease. However, rental income will still count as capital if none of the other disregarding provisions apply.