Hi - help please!

A shared owner currently owning 50% of his home has severe financial difficulties and is considering letting his housing association buy back a proportion of this share - this could entitle him to some housing benefit as the rent payable would increase. He would use the funds raised through the 'buy back' to pay off debts, including some or all of the mortgage; and would remain a leaseholder, rather than an assured tenant.

I'm concerned this scenario might fall foul of deprivation or contrived tenancy rules for housing benefit, were he to claim; however he sees no alternative way of remaining in the property.

Any ideas would be welcome. Thanks in anticipation.

I'll have a go but it probably needs someone who can summon up some caselaw to give you more certainty about how a LA might deal with an HB claim.

The issue of deprivation of capital would turn on what the person's main reason for disposing of this recently raised capital was. I would argue that this person simply wants to raise some money to repay debts. It is hard to see what other point there is in this case of the person relinquishing some more of his stake in the dwelling. For much the same reason it seems hard to conclude that the tenancy would be contrived - a tenancy already exists anyway.

The other possible problem is that he may fall foul of Reg 9(1)(h) as a "former owner", but he is already a shared owner and will retain some ownership so I am genuinely not sure if that reg would apply here.

I was trying to figure out a way of responding to the post and Andy's post has finally cleared the fog. Broadly, I agree with his post, but there are one or two additional points that may help.

"Contrived":

In my view, it is conceivable (just) that a LA could decide that the liability has been created to take advantage. But, for this to apply, it would have to be the dominant purpose. Based on the info given, I think it is highly unlikely that your client should fall foul of this provision.


Notional capital - deprivation

Much more tricky. For this to apply, the LA will only have to show that disposal of capital was with a "significant operative purpose" to obtain, or increase, HB/CTB. It does not need to be the main or dominant purpose.

Worse, CH/1822/2006 seems to suggest that such a purpose *may* be satisfied if the capital is disposed of in the knowledge that it is likely benefit will be relied upon later.


Former owner

I think your client is safe on this issue - HBR 12(2)(a) clearly envisages that payments in respect of shared-ownership liabilities will be eligible. And, unless your client is entitled to dispose of the fee simple, he is not an "owner" for HB purposes. In turn, I can't see how HBR 9(1)(h)) would bite.


Hope the above helps.

Thanks to you both, this is very helpful - I'll advise proceeding with caution.

You need to look at the chain of events when considering deprivation. The value of his share of the home is disreagrded, so there can be no question of deprivation if the person then sells that share back.

There will be a period during which the money just sits in the bank, even if its only a matter of hours. The question deprivation then arises because he has total control over what happens to the liquid asset, but I would argue that given that his sole reason for selling the share back was to raise the money to repay the debt, there is no significant operative purpose of obtaining benefit in the disposal at that point.

There have been a number of mortgage rescue schems in the past that have not fallen foul of the rules but I would say that this should be a very last resort.

If the debt is unsecured debt rather than mortgage debt, I would say that a good money adviser may well find a better way out of this. Even if its mortgage debt, it may well be possible to refinance it maybe with a new interest only mortgage.

There cannot be notional capital merely because a claimant disposes of part of a share in his own home, because a person's own home is ignored as actual capital: Sch 6 para 1 of the HB Regulations 2006.

The money generated by such a sale, however, will be taken into account as actual capital from the date of receipt. Sch 6 para 3 will not apply to the money if the claimant does not intend to use the money to buy himself a new home.

If that money is then used to pay off debts, then it is a question of fact whether doing so constitutes a deprivation of capital. The basic principles are the following:

(1) The disposal of capital need not be for the sole purpose of obtaining benefit, or even the main reason. It needs only to be a “significant operative purpose”: R(SB) 40/85 para 10.

(2) The disposal must be for the purpose of obtaining the relevant benefit and not some other benefit: R(IS) 14/93 paras 16-17. Thus if a claimant has in mind obtaining IS but not HB, there may be notional capital in relation to IS but not HB.

(3) A claimant’s purpose in entering into a transaction must be considered subjectively: CIS/124/1990 para 10; CH/3169/2004 para 13.

(4) Inferences may be drawn from the claimant’s conduct, but the fact that obtaining benefit was a natural consequence of the transaction will not be enough: R(SB) 9/91 para 8; CJSA/1395/2002 paras 12.

(5) Where there are several separate alleged deprivations of capital, the purpose and effect of each must be considered separately: CH/3169/2004 para 14.

(6) Where a loan is paid off, it is a question of fact as to whether at least part of the claimant’s purpose in doing so was to receive benefit: Jones v Secretary of State for Work and Pensions <2003> EWCA Civ 964, paras 41-42, 54. Thus the question of whether or not a loan is immediately repayable is not determinative, although if it is immediately repayable, that will be “very cogent evidence” that paying it of was not for the purpose of securing benefit: Jones para 55. As a matter of law, a loan is repayable immediately unless the parties to the loan have agreed otherwise.



DISCLAIMER: This post is intended as a general contribution to the subject-matter under discussion. It is not intended to be relied upon as legal advice. Any person with a similar or identical problem should seek advice from a welfare rights adviser or a lawyer specialising in welfare rights law.