Housing benefit on part-buy/part-rent.

orandas

Hi all. Apologies if this has been posted somewhere before but could do with some help please.

I am a joint trustee of a discretionary trust for the benefit of my niece that is derived from the estate of my late mum.

My niece is currently living with her mum and has a little boy. She desperately wants to move out but is struggling to find anywhere as she's living on benefits and the local council isn't being of much help.

I was wondering if we released the money in the trust to buy the ownership part of a part-buy property outright whether my niece would still be able to claim housing benefit on the rental part? Would the money that she inherited be counted as a gift and affect any housing benefit payments she received? Any other gremlins that anyone can think of?

I'd be grateful for any information on this.

BigAunty

Yes, housing benefit is payable on the rental part of the shared ownership scheme (see under long leaseholders section).

http://www.dwp.gov.uk/publications/specialist-guides/technical-guidance/rr2-a-guide-to-housing-benefit/housing-benefit/your-accommodation/

How is she going to be able to afford to pay the mortgage part or will this be fully covered by the trust fund? The problem with some occupants of shared ownership is they simply can't staircase their ownership -they never earn enough to increase their share.

I don't know how trust funds operate when it comes to benefits - sounds like you need to seek expert advice in this area. I am aware that some trust funds are legitimate and legal to protect capital from being counted towards means tested benefits but that others are not treated this way.You'd probably need to explain a bit more about its set up and structure for members of MSE to help.

For example, is your niece disabled or was the Discretionary Trust set up to shield the capital from Inheritance tax?

You can find the deprivation of capital rules by searching on the internet for the DWP decision makers guide, the staff manuals, for Income support/housing benefit and the HMRC site for tax credits.

They are there to prevent people receiving means tested benefits from deliberately reducing their capital to qualify for benefits, ensuring that they use money that they come into, such as through an inheritance, to pay for their everyday living expenses, such as rent.

BigAunty

Here is a factsheet from the DWP about trusts, you'll need to see if they are the latest version or not

www.dwp.gov.uk/docs/hbgm-bw1-assessment-of-capital.pdf

http://www.dwp.gov.uk/publications/specialist-guides/technical-guidance/rr2-a-guide-to-housing-benefit/working-it-out/income-and-capital/

uponahill

I understand. You want to release only that is sufficient to 'buy into' a rent/buy property, with the remaining amount being treated as a rent.

Only once have I come across this where 25% (being the minimum amount) was either raised on a mortgage or paid for outright, with the balance of 75% being 'rented'

First of all you have to establish the maximum amount of rent the council would award given her circumstances - maximise housing benefit availability.

Then establish what that amount the council would pay would represent as a % of the property price.

Then fund the difference.
There is no point in 'overbuying'' as that would result in not taking up the maximum housing benefit available, nor is there any point in 'underbuying' as the housing benefit would not cover the rent and she would have to fund the difference from her other benefits.

Are you proposing to transfer the money over to seller? I hope so, don't for heavens sake put it in her bank account to hold!

In effect you are making a distribution which does not cause any problems. The question I would ask, is there any good reason why the property could not be part owned by the discretionary trust and part owned by the beneficiary?
There are generally very good reasons that this is done. I would seek further professional advice on this.

But yes, it can be done in principle, with the housing benefit covering 100% of the rent, she being a homeowner and that it would have no implications as far as benefits go.

The only thing that the trustees are responsible for apart from their duty of care, is to account for any tax that arises in the UK on any growth of the trust funds. But that again can be manipulated using various off shore vehicles and personal pension policies.

But please be aware that there are people in this country who might suggest that this is wrong and that the money is better used by the young lady to support herself instead of claiming benefits to do so.

ladyrider260

I feel for your niece, I live in a slum because the landlords of my last (nice) property decided to sell up and this was all I could get being on IS. I too am struggling to find a nice rental property because people read 'single mum on benefits' and put me down there with the chavs, they don't meet the reliable, clean, tidy and well educated woman that I am who has a 15 year exemplary rent record!
When applying for housing benefit, you are asked on the form if you are related to your landlord. I know a couple of people who have been refused benefits due to relatives going down the 'buy to let' road to help them out.

orandas

Thank you all.
BigAuntie and uponahill, all very complicated to explain but when my mum died in 2007 she left half of her estate to me (all very straightforward) and the other half to my nieces. In her will, she stipulated that because of their youth (they were 18 and 14 when she died) the money should be kept in trust for them until the age of 21 BUT at the trustee's discretion we could release funds to them earlier (or later if we felt like it!). The money was bunged into a bank account because that was the easiest thing to do at the time - my elder niece was paid out when she reached 21 - and the younger niece's share is still sat in the bank and earning very little for it's keep.
She's now 19, has a 1 year old and is living at home with her mum. Without raking up too much family muck, my sister is drinking far too much than is healthy which is causing problems for my niece. She's basically trapped there because she's relying on benefits and social housing is proving difficult because she has a roof over her head albeit a not particularly comfortable one.
Now I know that a person's home isn't taken into account when assessing for benefits claims but there isn't enough cash in the bank for her to buy a property outright in areas where you would want to kennel a dog. This is why I thought of looking at the part buy/part rent route; being mortgage free and able to claim benefits to cover the remaining rent until she can get a job.
Uponahill, I would definitely not transfer any funds to her personally and anything paid would be direct to a seller. As for maximising any benefits claims she can make, that's not a priority as far as I'm concerned. My priority is getting her and her lad some stability, a roof over their heads and a kick up the bum into getting her to stand on her own two feet. It's what my mum would have wanted. As for the discretionary trust part-owning the property, do you know what the implications would be with regard to tax? Sorry, but I'm a total air-head when it comes to things like this.
Ladyrider, could you explain a little more on the problems the people you know have had with relatives helping out? Thanks!

BigAunty

Sorry I can't offer any further advice. There must be solicitors with trust fund knowledge or welfare experts that can give you a concrete answer as to whether you can purchase a property, either in your niece's name or the trust's name, without it conflicting with deprivation of capital rules.

If shared option isn't the best solution, the other option is for your niece to find a privately rented 2 bedroom property and get it paid by local housing allowance. She can find the 2 bedroom rate on the Direct Gov or local council website.

Do a full search on the problems associated with Shared ownership housing - the housing forum will have some threads or ask members for a summary of potential issues. As I've said, one problem is that some will never own the property outright. I think other problems are that you can't rent the property out and sales are sluggish, then there's high service charges and so forth. The main problem with SO is that the occupier is neither fish nor foul - full owner or full tenant. A good idea for those with low incomes seeking to buy in theory but not working out in practice.

I suppose another option is to wait until she's earning and then she can get a conventional mortgage for a standard property with the trust money as the deposit and legal fees. I believe that within a few years, a lone parent is moved off Income Support and onto Job Seekers allowance when their youngest reaches 5/attends school (currently 7 years of age).


How much would she have to earn to buy a property in the area once the deposit is paid? What kind of fund sum does she have and what is the average decent 2 bed house price?

If she's National Minimum Wage potential, either through lack of skills, experience, drive, qualifications or living in a deprived area, working-part time to bring up her kid, then any kind of major mortgage obligation could be out of her league. For example, on a full time NMW job, I imagine a lender would loan around 3 or 4 times the sum, so around 33k to 44k. On a part time wage, half that.

If she doesn't have the earning potential to take on a mortgage, then one of the worst things that can happen is to saddle someone with an enormous debt for 25 years.

BigAunty

orandas wrote: »

..
Ladyrider, could you explain a little more on the problems the people you know have had with relatives helping out? Thanks!

Though I hope I'm not being presumptious, what I think Ladyrider is alluding to is something known as a 'contrived' tenancy. Landlords are permitted to let out their properties to close relatives who claim housing benefit so long as they don't live in the same place AND it is a proper tenancy, arranged on a commercial basis and not contrived to take advantage of the HB system.

It is considered contrived, for example, if the landlord doesn't charge rent to their relatives when they work but do charge when they are not working and ask for HB to pay it.

I don't believe this applies in your case - you wouldn't be the owner of the property your niece will live in, it's not a buy to let scenario.

ladyrider260

I read the post again and as long as the house belongs to the trust and not yourself then it may be ok. It's basically if a member of the family themselves own the house.
However, the part buy I assume you mean by 'shared ownership' may be covered by a sub-letting clause. Because the house will be part-owned by the trust, the actual name would need to be your nieces on the paperwork for tenancy reasons. If thats the case, she would be considered the part owner and she may not qualify for the rent to be paid because of the equity.
It's a very grey area and varies according to the housing associations and what road you go down with buying etc.

I'm going purely by experience of my Aunt who has been in a similar situation. As for the others renting to relatives, it's because the housing department expect your relative to let you live in their property rent-free if they have one empty and at their disposal!

mark24c

your getting the wrong end of the stick i think 25% is being bought outright and no rent being charged on that proportion - the remaining 75% will be owned by a HA as is normal under shared ownership and rent is paid to the HA on the 75% part of the property

Alleycat

A pitfall that I haven't seen mentioned yet (sorry multitasking so may have missed it), would be possible Service Charges if the property is in a block. Also major works bills that can come in at quite substantial sums for example to replace a lift/windows/roof. These costs are not covered by Housing Benefit and can be very difficult to manage for people on full benefits. Once the owned share was purchased, would there be anything left in the Trust Fund to cover them?