Capital rule

Last updated

The capital rule is a British rule for determining eligibility for social security benefits. The means tested social security system in the United Kingdom has always operated an eligibility test for savings. The Poor law required claimants to be destitute but there does not appear to be any documentation about how the test of destitution was applied. The great increase in home-ownership during the twentieth century in the UK necessitated detailed rules about how a claimant's capital should be treated. Since at least 1948 the value of a claimant's home has been disregarded in assessing their resources.

Contents

Capital has always been assessed on a household basis, that is jointly for a couple, whether or not married. The capital of any dependent children is normally disregarded. [1]

The National Assistance Act 1948 established that the value of the claimant's home should be disregarded, as were war savings and up to £375 in savings. Capital in excess of £50 but below £375 was treated as generating an income of six pence per week for each £25. [2]

Under the Supplementary Benefit scheme, introduced in 1966, the detailed rules were not published, but in 1980 it was put on a statutory footing with the publishing of detailed regulations. The capital cut off was originally established as £2000. [3]

Income Support

With the change to Income Support in 1988 the capital rules were largely the same as those for Supplementary Benefit. The capital cut off was set at £6000, and capital between £3000 and £6000 was treated as generating income of £1 per week for each £250.

The rules about capital generally apply to Housing Benefit and other means tested benefits but there are some differences between the rules for different benefits.

The value of the home was completely ignored if the claimant normally lived in it as was money deposited with a Housing Association. The value of any other property in which the claimant did not live was ignored for six months or longer if it was reasonable and the claimant had:

Money from the sale of a home, money given or borrowed for repairs, replacements or improvements, property for sale which they are taking reasonable steps to sell, were all ignored for six months and sometimes longer. If they started legal action to enable them to live in a property the value of the property might be disregarded while the legal action goes on if they cannot live in it. [4]

Any premises occupied by an elderly or incapacitated relative or by a former partner are disregarded. Money held in trust which the claimant is entitled to is counted, unless it is money for a personal injury or a discretionary trust in which case it is ignored. [5]

Other personal possessions are normally ignored unless they had been acquired in order to avoid the capital rules. The assets of a business are ignored so long as the claimant continues to work in that business, or intends to return to the business when their health permits. There are special rules if a claimant's business is registered as a limited company.

Any payment of arrears of benefit are generally ignored for 12 months, and if more than £5000, paid to rectify or compensate for an official error, indefinitely.

The value of a personal pension scheme, life insurance or annuity is ignored, together with a long list of compensation and charitable payments.

Universal Credit

Under Universal Credit the first £6000 is ignored. Capital over £16000 disqualifies the claimant. Capital between those limits if treated as giving tariff income of £4.35 per month for each £250, or part of £250. [6]

Notional capital

A person may be treated as having capital which they do not actually possess. This most commonly happens if they are considered to have deprived themselves of capital in order to evade the capital rules. It can also happen if they do not apply for money which is theirs, or if someone makes a payment on their behalf to a third person, or if they get a payment on behalf of another person but fail to pass it on.

Valuation of capital

10% is allowed against the valuation of capital if there are expenses involved in realising it. Otherwise capital is valued at current market value. The value of any debt or mortgage secured on a property is deducted. Apart from that there is no provision for counting debts against assets. Jointly owned property is normally divided by the number of joint owners. [7]

Related Research Articles

An individual savings account is a class of retail investment arrangement available to residents of the United Kingdom. First introduced in 1999, the accounts have favourable tax status. Payments into the account are made from after-tax income, then the account is exempt from income tax and capital gains tax on the investment returns, and no tax is payable on money withdrawn from the scheme. Cash and a broad range of investments can be held within the arrangement, and there is no restriction on when or how much money can be withdrawn. Since 2017, there have been four types of account: cash ISA, stocks & shares ISA, innovative finance ISA (IFISA) and lifetime ISA (LISA). Each taxpayer has an annual investment limit which can be split among the four types as desired. Additionally, children under 18 may hold a junior ISA, with a different annual limit.

<span class="mw-page-title-main">Council Tax</span> Local taxation system

Council Tax is a local taxation system used in England, Scotland and Wales. It is a tax on domestic property, which was introduced in 1993 by the Local Government Finance Act 1992, replacing the short-lived Community Charge, which in turn replaced the domestic rates. Each property is assigned one of eight bands in England and Scotland, or nine bands in Wales, based on property value, and the tax is set as a fixed amount for each band. The more valuable the property, the higher the tax, except for properties valued above £320,000. Some property is exempt from the tax, and some people are exempt from the tax, while some get a discount.

An individual retirement account (IRA) in the United States is a form of pension provided by many financial institutions that provides tax advantages for retirement savings. It is a trust that holds investment assets purchased with a taxpayer's earned income for the taxpayer's eventual benefit in old age. An individual retirement account is a type of individual retirement arrangement as described in IRS Publication 590, Individual Retirement Arrangements (IRAs). Other arrangements include employer-established benefit trusts and individual retirement annuities, by which a taxpayer purchases an annuity contract or an endowment contract from a life insurance company.

A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property.

Jobseeker's Allowance (JSA) is an unemployment benefit paid by the Government of the United Kingdom to people who are unemployed and actively seeking work. It is part of the social security benefits system and is intended to cover living expenses while the claimant is out of work.

A means test is a determination of whether an individual or family is eligible for government assistance or welfare, based upon whether the individual or family possesses the means to do without that help.

<span class="mw-page-title-main">Circular flow of income</span> Model of the real economy

The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction. The circular flow analysis is the basis of national accounts and hence of macroeconomics.

For households and individuals, gross income is the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes. It is opposed to net income, defined as the gross income minus taxes and other deductions.

Housing Benefit is a means-tested social security benefit in the United Kingdom that is intended to help meet housing costs for rented accommodation. It is the second biggest item in the Department for Work and Pensions' budget after the state pension, totalling £23.8 billion in 2013–14.

In Australia, superannuation, or just super, is the term for retirement pension benefit funds. Employers make compulsory contributions into these funds on behalf of their employees.

Working Tax Credit (WTC) is a state benefit in the United Kingdom made to people who work and have a low income. It was introduced in April 2003 and is a means-tested benefit. Despite their name, tax credits are not to be confused with tax credits linked to a person's tax bill, because they are used to top-up wages. Unlike most other benefits, it is paid by HM Revenue and Customs (HMRC).

A child trust fund (CTF) is a long-term savings or investment account for children in the United Kingdom. New accounts can no longer be created as of 2011, but existing accounts can receive new money: the accounts were replaced by Junior ISAs.

Income Support is an income-related benefit in the United Kingdom for some people who are on a low income, but have a reason for not actively seeking work. Claimants of Income Support may be entitled to certain other benefits, for example, Housing Benefit, Council Tax Reduction, Child Benefit, Carer's Allowance, Child Tax Credit and help with health costs. A person with capital over £16,000 cannot get Income Support, and savings over £6,000 affect how much Income Support can be received. Claimants must be between 16 and Pension Credit age, work fewer than 16 hours a week, and have a reason why they are not actively seeking work.

<span class="mw-page-title-main">Mortgage loan</span> Loan secured using real estate

A mortgage loan or simply mortgage, in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning "death pledge" and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. A mortgage can also be described as "a borrower giving consideration in the form of a collateral for a benefit (loan)".

A life annuity is an annuity, or series of payments at fixed intervals, paid while the purchaser is alive. The majority of life annuities are insurance products sold or issued by life insurance companies however substantial case law indicates that annuity products are not necessarily insurance products.

Employment and Support Allowance (ESA) is a United Kingdom welfare payment for adults younger than the State Pension age who are having difficulty finding work because of their long-term medical condition or a disability. It is a basic income-replacement benefit paid in lieu of wages. It is currently being phased out and replaced with Universal Credit for claimants on low incomes, although the contribution-based element remains available.

Pension Credit is the principal element of the UK welfare system for people of pension age. It is intended to supplement the UK State Pension, or to replace it. It was introduced in the UK in 2003 by Gordon Brown, then Chancellor of the Exchequer. It has been subject to a number of changes over its existence, but has the core aim of lifting retired people of limited means out of poverty.

Relfo Ltd v Varsani [2014] EWCA Civ 360 is an English unjust enrichment law case, concerning to what extent enrichment of the defendant must be at the expense of the claimant.

<span class="mw-page-title-main">Welfare Reform Act 2012</span> United Kingdom legislation

The Welfare Reform Act 2012 is an Act of Parliament in the United Kingdom which makes changes to the rules concerning a number of benefits offered within the British social security system. It was enacted by the Parliament of the United Kingdom on 8 March 2012.

Carer's Allowance is a non-contributory benefit in the United Kingdom payable to people who care for a disabled person for at least 35 hours a week. It was first established as Invalid Care Allowance in 1976, and married women were not eligible. This policy was held to be unlawful sexual discrimination by the European Court in 1986 in the case of Jackie Drake. See Carers rights movement In May 2020 around 1.1 million people in England were entitled to Carer’s Allowance, of which 780,000 people were being paid it, according to the National Audit Office.

References

  1. ↑ Disability Rights Handbook 37th edition. Disability Rights UK. 2012. p. 144. ISBN   9781903335567.
  2. ↑ "National Assistance Act 1948, second schedule". Legislation.gov.uk. 13 May 1948. Retrieved 30 January 2019.
  3. ↑ "The Supplementary Benefit (Resources) Regulations 1980". Legislation.gov.uk. 15 August 1980. Retrieved 30 January 2019.
  4. ↑ Ogus, A; et al. (1988). The Law of Social Security (3 ed.). London: Butterworth & Co. ISBN   0406633703.
  5. ↑ "Help for people on a low income - Income Support". Adviceguide. Citizens Advice. Archived from the original on 5 November 2013. Retrieved 1 January 2014.
  6. ↑ "Universal credit". Ask CPAG. April 2022. Retrieved 11 November 2022.
  7. ↑ Welfare benefits and tax credits handbook. London: Child Poverty Action Group. 2003. ISBN   1901698513.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.