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ISA Rules and the DWP
q64ad
Posts: 4 Newbie
Hi,
I'm not sure if this is the right forum section, but as it specifically concerns ISA regulations, I thought I would post here first.
The question concerns the way that the DWP interpret the ISA regulations when determining the capital that a person "legally and beneficially"owns.
The DWP take the view that:
1. HMRC rules do not allow money held in an ISA to be held on behalf of another person.
2. The ISA rules state that the named owner of the ISA is both the legal and beneficial owner of the money in the ISA. (In other words, the money "totally belongs" to the ISA holder in every sense)
So far, so good, but I was wondering if you could please give me your opinions on the following hypothetical situation.
1. At the start of the new tax year, Mr.A goes to his bank and arranges to borrow £15,000. He fills in all the forms and agrees that the money will be repaid in one years time (with an agreed lump sum of interest to be paid at the time.)
2. He asks for (and receives) the sum in cash, then walks to the bank next door and pays that cash into his existing ISA. This is within the ISA limit for the year, so he is perfectly entitled to do so. No laws have been broken.
The question now is how would the DWP view the money in his ISA if he now claimed for benefits?
1. Would they view him as having "legal and beneficial ownership" of £15,000 capital or would they take the view that his debt to the bank cancels out the capital in his ISA and decide that he has no capital?
2. If Mr.A now repays the £15,000 from his ISA back to the lending bank, would the DWP now take the view that he has deliberately deprived himself of capital in order to recieve benefits?
3. Can Mr. A go to his lending bank and claim that as he has "legal and beneficial ownership" of the money in his ISA, then the bank must have "gifted" it to him? (Obviously not)
4. In a nutshell, can you deposit money in your ISA that has been lent to you?
I would welcome any views as this fairly simple question can have massive implications for the unwary.
I'm not sure if this is the right forum section, but as it specifically concerns ISA regulations, I thought I would post here first.
The question concerns the way that the DWP interpret the ISA regulations when determining the capital that a person "legally and beneficially"owns.
The DWP take the view that:
1. HMRC rules do not allow money held in an ISA to be held on behalf of another person.
2. The ISA rules state that the named owner of the ISA is both the legal and beneficial owner of the money in the ISA. (In other words, the money "totally belongs" to the ISA holder in every sense)
So far, so good, but I was wondering if you could please give me your opinions on the following hypothetical situation.
1. At the start of the new tax year, Mr.A goes to his bank and arranges to borrow £15,000. He fills in all the forms and agrees that the money will be repaid in one years time (with an agreed lump sum of interest to be paid at the time.)
2. He asks for (and receives) the sum in cash, then walks to the bank next door and pays that cash into his existing ISA. This is within the ISA limit for the year, so he is perfectly entitled to do so. No laws have been broken.
The question now is how would the DWP view the money in his ISA if he now claimed for benefits?
1. Would they view him as having "legal and beneficial ownership" of £15,000 capital or would they take the view that his debt to the bank cancels out the capital in his ISA and decide that he has no capital?
2. If Mr.A now repays the £15,000 from his ISA back to the lending bank, would the DWP now take the view that he has deliberately deprived himself of capital in order to recieve benefits?
3. Can Mr. A go to his lending bank and claim that as he has "legal and beneficial ownership" of the money in his ISA, then the bank must have "gifted" it to him? (Obviously not)
4. In a nutshell, can you deposit money in your ISA that has been lent to you?
I would welcome any views as this fairly simple question can have massive implications for the unwary.
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Comments
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Not sure I understand the specific significance of ISAs to this set of questions - I must admit that I'm not familiar with the calculations involved in means testing but would have assumed that both assets and liabilities would be taken into consideration. Anyone taking out a bank loan and depositing the money in a cash ISA wouldn't seem to have a particularly strong grip on finances, and relative interest rates in particular, so I can't think of any reason why this would ever be anything other than an entirely hypothetical scenario....0
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I'm not sure what you are getting at with your comment this will have implications for the unwary. How many people are going to deliberately borrow money to put into a saving account in this way so they can possibly claim benefits?
DWP don't take into account loans, as far as I can see, so I assume they will say whilst the £15k is in your ISA no means tested benefits are payable. They will tell you to come back when your assets drop below the threshold and will then re-assess.
But, what is the point in doing it? Are you saying you can borrow £15k for a year and pay less interest than you can get from an ISA over a year?
If so, please advise where this ISA and/or lending institute is.0 -
Well I've got a mortgage with Nationwide at 2.5% and a regular saver ISA at 2.59%I'm not sure what you are getting at with your comment this will have implications for the unwary. How many people are going to deliberately borrow money to put into a saving account in this way so they can possibly claim benefits?
DWP don't take into account loans, as far as I can see, so I assume they will say whilst the £15k is in your ISA no means tested benefits are payable. They will tell you to come back when your assets drop below the threshold and will then re-assess.
But, what is the point in doing it? Are you saying you can borrow £15k for a year and pay less interest than you can get from an ISA over a year?
If so, please advise where this ISA and/or lending institute is.
But yes the question is silly. The £15k will definitely be seen as capital by DWP. If the loan was paid off it's debatable if that would be seen as deprivation of capital.0 -
Well I've got a mortgage with Nationwide at 2.5% and a regular saver ISA at 2.59%
But yes the question is silly. The £15k will definitely be seen as capital by DWP. If the loan was paid off it's debatable if that would be seen as deprivation of capital.
Is your mortgage only for a year
(BTW I also have Nationwide mortgage and ISA giving the rates you have so I know where you're coming from.)
I've just realised what the OP is asking, I missed the bit above deprivation of assets.
Clearing loans with savings to get below the threshold is deprivation of assets.
My other half had this issue 20 or so years ago and it was definitely seen as deprivation of assets to clear a loan with savings. I can't believe it has changed.0 -
Well I've got a mortgage with Nationwide at 2.5% and a regular saver ISA at 2.59%
You could sensibly put a max of £1,250 into that Regular Saver ISA, at the start of the 12-month ISA. For a mahoossive £1.13 profit before tax..........
Not sure what the OP is trying to achieve but taking out a bank loan to put into a savings account seems a rather counter-productive.
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I agree that the hypothetical situation would be unusual, but it does highlight the strange situation that exists regarding ISAs over most other forms of savings.
ISA rules state that the named holder of the ISA is the legal and beneficial owner of the money, where as other savings accounts (eg a BS savings account) only state that the named holder is the legal owner.
In other words there can be money being held within a "non ISA" that "belongs" to someone else. In an ISA, according to the DWP, this cannot be the case, and all the money in the ISA is deemed to belong to the individual in whose name the ISA is held.
In the hypothetical example, Mr. A has done nothing illegal. He has arranged a loan with a bank. He has done nothing wrong by putting that money in an ISA (regardless of whether or not it makes sense to do it.)
I believe that the DWP would make the assessment in the first year that he has capital of £15,000 (even though his "nett worth" (assets minus liabilities) is zero) and would reduce benefits accordingly.
The big question is at the end of the year, when he uses the loaned ISA money to pay off the debt, will he be deemed to have deprived himself of capital, even though he has only repaid the loan that gave him the capital in the first place?
Can we really be deemed to have deprived ourselves of assets purely by having paid off the loan that gave us the assets in the first place?0 -
Well it can be, or bits of it can. I've got an overpayment reserve which I can draw down on whenever I want.Is your mortgage only for a year (BTW I also have Nationwide mortgage and ISA giving the rates you have so I know where you're coming from.)
It depends, paying off a high interest loan or a loan you have to repay wouldn't be.I've just realised what the OP is asking, I missed the bit above deprivation of assets.
Clearing loans with savings to get below the threshold is deprivation of assets.
My other half had this issue 20 or so years ago and it was definitely seen as deprivation of assets to clear a loan with savings. I can't believe it has changed.
Taken literally, if you pay off your credit card that's paying off a loan, even if you pay every statement in full. So people who use a credit card for their day to day living expenses could theoretically be in trouble.0 -
Well assuming at least £15k in the overpayment reserve, could have drawn down £1250 per month from the mortgage and shoved it into the ISA...but even then it's not worth the hassle (sure it would be to some people).You could sensibly put a max of £1,250 into that Regular Saver ISA, at the start of the 12-month ISA. For a mahoossive £1.13 profit before tax..........0 -
I think you will find that the legal owner of money in any account is the account holder.ISA rules state that the named holder of the ISA is the legal and beneficial owner of the money, where as other savings accounts (eg a BS savings account) only state that the named holder is the legal owner.
It's not illegal, just incredibly stupid. If he wants to lose money, there are faster ways to do that. Like simply burn a few £20 notes.In the hypothetical example, Mr. A has done nothing illegal. He has arranged a loan with a bank.
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I don't know how benefits are calculated but from what you are saying, Mr. A wouldn't only stupidly borrow money that he makes a loss with, he would also deliberately reduce the amount of benefit he gets. Double stupid.I believe that the DWP would make the assessment in the first year that he has capital of £15,000 (even though his "nett worth" (assets minus liabilities) is zero) and would reduce benefits accordingly.0 -
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