Capital and means tested benefits – a three part analysis

Part 1. Jointly owned property

In a series of three articles to be published in ECA over the coming months, Alan Robinson, of Legal and Welfare Rights Training discusses the effect of capital on entitlement to income based benefits.

Although the principles outlined are of general application within the benefits field (for example on breakdown of marriage), the articles will be of most relevance to those who own a capital asset such as a house and who go to live in residential care. The first article covers the issue of jointly owned property. The second considers what capital is disregarded and when, and also addresses an issue raised by David Coldrick in ECA Vol 6 Issue 6 regarding the decision in Campbell v Griffin and others, in which a carer gained an interest in property through proprietary estoppel. The third article looks at the notional capital rule.

Where property is jointly owned, the question arises as to how it is to be dealt with when one or both of the joint owners claims an income-based benefit. The situation which arose in Chief Adjudication Officer v Palfrey is a typical example. The facts were that an 81 year old widower lived in a former council house with his 52 year old daughter. He had exercised his right to buy the house, which had been conveyed to him and his daughter as legal and equitable joint tenants. Mr Palfrey went into a residential care home in 1991, and could no longer rely on the disregard of a house that applies where it is the claimant’s home. No other disregards applied to the house (it is worth noting that there would have been such a disregard if Miss Palfrey had been aged at least 60). The house was valued by the district valuer as worth £40,000; after the expenses of sale had been taken into account its value would be around £32,000. What share of this capital value is attributed to Mr Palfrey, in order to determine the effect on his benefits?

The law is to be found in Regulation 52 of the Income Support (General) Regulations 1987 No 1967. References to Reg 52 should be taken as also including the equivalent provisions in respect of other income-based benefits – Regulation 115 of the Jobseekers Allowance Regulations 1996 No 207, Regulation 44 of the Housing Benefit (General) Regulations 1987 No 1971, and Regulation 36 of the Council Tax Benefit (General) Regulations 1992 No 1814. Regulation 52 has been subject to exhaustive analysis in the case law, and readers who wish to consider the issues in more depth are referred to an article by Nick Wikeley in Journal of Social Security Law 2001 No 3 at page 95.

All income-based benefits include a capital rule, whereby the savings and capital of the claimant (and, usually, their partner if they have one) are taken into account in determining, firstly their entitlement to benefit, and secondly the amount of that benefit. For income support, income-based jobseekers allowance and working families tax credit, the capital cut-off point is £8000; for housing and council tax benefits, and for disabled persons tax credit, the figure is £16,000. There are two principal exceptions to this rule. Firstly, where the claimant or their partner is aged 60 or over, the figure for income support and income-based jobseekers allowance goes up to £12,000. Secondly, where the claimant lives permanently in residential care, the income support and IBJSA figure is £16,000.

Amount of benefit is determined by reference to income, but income from capital is not assessed in the same way that (say) income from earnings is. It is based on a tariff. So for all six benefits, the first £3,000 is ignored, and any balance in excess of £3000 is taken into account by deeming that the claimant receives a weekly income of £1 for every £250 or part of £250 above £3000. Again there are two exceptions; where the claimant or their partner is aged 60 or over, it is the first £6000 that is ignored for all benefits, and where the claimant is permanently living in residential care, the first £10,000 is ignored.

Where the capital asset is an individual bank or building society account, these rules cause little difficulty. Where, however, the asset is in the form of a house or other land, the situation may be more problematic. The first issue is how the house is to be valued; this is relatively straightforward, covered as it is in regulations. Regulation 49 of the Income Support Regulations states that the value is to be taken as the current market value of the asset, after deduction of the value of any incumbrance, and after the further deduction of 10 per cent which represents the costs of a sale.

The second issue is where the house is jointly owned, and the claimant is entitled only to a share and not to the whole amount. There are two possible approaches to valuing the claimant’s share. It can be done by the arithmetical process of valuing the asset as a whole and dividing its value by the number of co-owners; or the claimant’s share alone can be valued directly. If the latter approach is adopted, bearing in mind that such a share may not have a willing purchaser, the market value is likely to be less than that obtained by the first method, and (if the share is considered unsaleable) may well be nil.

Regulation 52 (as amended early in its life) read as follows:

“Except where a claimant possesses capital which is disregarded under regulation 51(4) (notional capital), where a claimant and one or more persons are beneficially entitled in possession to any capital asset they shall be treated as if each of them were entitled in possession to the whole beneficial interest in an equal share and the foregoing provisions of this Chapter shall apply for the purpose of calculating the amount of capital which the claimant is treated as possessing as if it were actual capital which the claimant does possess. “

This regulation, in its original form, thus appears to include a “double deeming” provision. Firstly, the regulation deems that, where the claimant is the co-owner of an asset, he or she owns it in equal shares with their co-owners, irrespective of the actual shares of the co-owners. The second deeming provision lays down that the value of the claimant’s share is to be determined by valuing the asset (in accordance with Reg 49) and dividing the net figure by the number of co-owners.

The first of these provisions can in fact work in the claimant’s favour; for example the Boots case (CIS 408/90), where the claimant owned a half-share in a commercial property, the other half-share in which was jointly owned by two people. Because of the deeming provision, the claimant’s share was deemed to be one third of the value of the property, and not one-half as the law of real property prescribed. Wikeley points out the scope for benefit planning here – a person who owns a large sum of money could mix it in an account with the money of a number of others, all of whom own lesser sums; under Regulation 52, the parties each own an equal share of the whole. This issue will be considered in the third article in this series, because of the possible impact of the notional capital rule. Meanwhile, the advice is not to try it without careful thought!

It has been the subject of some doubt as to whether the first deeming provision applies to tenancies in common as well as to joint tenancies (note to non-lawyers – the terminology has nothing to do with landlord and tenant. A joint tenancy is where each co-owner owns a part of the whole, and thus the shares must be equal; a tenancy in common, or in undivided shares, is where the co-owners have differentiated shares, which may thus be of different sizes.) In the most recent reported case on the topic (CIS 5906/99), Commissioner Lloyd Davies holds that the first deeming provision of Reg 52 does not apply to tenancies in common. The Commissioner draws attention to Commissioners decision CIS 7097/95, which holds that Reg 52 applies only to beneficial joint tenancies. In the case of a tenancy in common, the capital asset is the undivided share itself, and not the asset as a whole. This, in his view, is preferable to the view of Commissioner Goodman in Tucker (see below), who held that Reg 52 did apply to tenancies in common. According to Mr Lloyd Davies, Dr Goodman in that case claimed as authority for his finding the decision of the Tribunal of Commissioners in Palfrey (see below), but the Tribunal of Commissioners in that case expressly left the question open. For the present, therefore, there is support for the proposition that Reg 52 applies only to joint tenancies. It is understood that the Department is to ask the Court of Appeal to consider the issue.

The second deeming provision can obviously work against the interests of the claimant, and has been challenged before the Commissioners and the Court of Appeal. The two principal cases are those referred to above, namely the decision of the Court of Appeal in Chief Adjudication Officer v Palfrey (8.2.95, reported in summary in the Times of 17.2.95), and the decision of Commissioner Goodman in Tucker (CIS 15936/96, CIS 263/97, CIS 3283/97).

The facts of Palfrey are given above. It will be recalled that the net value of the property, as determined by the District Valuer, was in the region of £32,000. According to the Department’s interpretation of Reg 52, Mr Palfrey’s share would be £16,000, well in excess of the (then) £8000 capital limit. It was clear that Miss Palfrey was unwilling to move or to concur in a sale of the property.

A Tribunal of Commissioners held that the valuation carried out by the District Valuer was worthless. It was a valuation of the house, and not of Mr Palfrey’s share in it; whereas it was the share that fell to be valued, and not the asset. The Court of Appeal upheld this view. Lord Justice Nourse said that Regulation 52 required the valuation of the claimant’s deemed (or actual) beneficial interest in an equal share in a tenancy in common. Regulation 49 required this to be valued by reference to its current market value, “with the probable result that it will be given a nil value”.

The Department sought to amend Regulation 52 by specifying an arithmetical method of calculating a share, but this amendment was successfully challenged on the grounds of ultra vires before Commissioner Goodman in the case of Tucker. In that case (heard together with two other cases, with a Common Appendix giving reasons for the decision) the claimant was a 73 year old widow who owned what was thought to be a one third share in a property with her daughter and son-in-law, which had a net value of £18,000. This fixed her with tariff income based on capital of £5,380. The Commissioner held that the amendment to Reg 52 was outside the powers of the primary legislation. The power in section 136(3) of the Social Security (Contributions and Benefits) Act 1992 did not permit the imposition of a calculation which could arrive at a figure bearing no relation to the actual value of the asset, and therefore the appeal was upheld. The Department decided against pursuing an appeal against the decision, and Regulation 52 therefore reverts to the wording quoted above, which was that before the Court of Appeal in Palfrey.

The present position therefore seems to be that where the claimant is the joint owner of any property (and not just land), his or her share is to be valued as a separate item under Reg 49 to determine its capital value for benefit purposes. This is so whether it is an equal share or not. If nothing is specified as to the relative value of each share, they will be deemed under the first deeming provision in Reg 52 to be equal shares; if the share is specified, it is this which is valued.

The next article will consider actual and potential disregards of a claimant’s capital, including where a third party has an interest in the capital asset by way of proprietary estoppel, and will address some of the other consequences of the interpretation of Reg 52.

Alan Robinson, Legal and Welfare Rights Training