IS, Capital & Derived Income

Cl had to resign for good reason, needs to make claim for IS, as Cl has 2.5 year old child. Should claim for IS be supported with good cause argument at the beginning of claim?

Also owns one property from which their is a derived income (rental) and has mortgage on another. Will be given 2 months pay off.

Am I right in thinking, Council will look at Capital first, then if not applicable look at income on first property and take this into account?

Second property has mortgage will cl be able to Mortgage relief interest payments on this does the council contact Valuation office asking for what value is of her half of mortgage?

Any help welcome.

There are no work job related sanctions (i.e. leaving your job without just cause) in IS.  I’ve not got the books to hand at present but from what I can remember rent from a second property is treated as capital.  Housing costs can only be paid on the dwelling usually occupied as the home.  And, I wouldn’t bet my life on the LA/DWP carrying out extensive enquiries before making an evaluation.

Equity from 2nd property (i.e value minus mortgage, secured loans etc) can be taken into account as capital, minus standard 10 % for costs of sale. So if over £16000, no entitlement. Only option would be take steps to dispose of it, in which case HB can ignore equity for up to 6 months.

Nevip’s right, the income from letting is treated as capital, unless the value of the property is disregarded as above - in which case its treated as income!
I have lost count of the number of times I have seen people who have a let out a second property, have not registered with HMRC, no tax returns, no accounts for years - is your client in this situation too?

Don’t forget that the capital can be disregarded beyond 6 months at the DM’s discretion should the steps being taken to dispose of the property continue to be “reasonable” and that from any income from rent is offset against mortgage and insurance payments.

A wise(?) set up would be to mortgage the house with the tenants, settle the mortgage on the other property with the money, then plonk them both on the market.

Whether that would trip over the deprivation rules is an interesting question though.

You say “her half” of the mortgage; you need to check whether she’s a joint tenant or is a tenant in common as that may affect the assessed amount of equity. If I Recall Correctly (IIRC) Joint tenants get half whereas a tenant in common is entitled to the lot.

Dan, I think I remember somewhere that although the 6 months can be extended for other means tested benefits, the Reg is slightly different for HB and there is no discretion to extend beyond 6 months?

Gentlemen, many thanks.

Hi Dan, I like the out the box thinking, sadly you don’t find many mortgage lenders lending to IS claimants.  Some do if rental income, yield and equity are factored in. 

On your deprivation point, would be interesting to know what DWP would do with a claimant that had 16k+ savings prior to claiming benefits and them clearing debts, paying lump sum to mortgage prior to claiming.