Small and New landlords

Jeremy535897

Grumpy_chap said:

Galloglass said:

Welcome to the bizarre world of UC. If you have £300k in cash. No UC. In bonds. No UC. Call yourself a Landlord and you can have UC.

Bonkers!

There was another thread where someone suggested (either correctly or not) that a Ltd Co Director of own Ltd Co could qualify for UC based upon the income level of the Ltd Co, but ignoring any retained profits (which could be substantial, i.e. >£16k in UC terms) there may be within the Ltd Co.  That does not seem correct to me.

Universal credit is extremely difficult to understand, because it addresses two things: income and capital. If you have a certain level of income, a wage for example, you may not get UC even if you have no assets at all. If you have a certain level of capital, unless that capital is disregarded, you get no UC even if your income is zero. And if you hold on to your income rather than spending it, it becomes capital (a double whammy). 

The £16,000 limit on capital is not really what it seems. Capital per se is not what stops UC. UC assumes you receive an income of 20.88% per annum on capital, whether it be shares in a sole director company (but see below), or shares in Tesco, or property (unless disregarded), or money in the bank (dream on). Once you hit £16,000 capital, that assumed income kills the UC claim. Actual income, which will be much less, is ignored (or there would be double counting), but of course it becomes capital if it is not spent, as noted above.

I know very little about UC, and when you look at sole director companies, it becomes even more complex, as in assessing the income of the claimant director, you look at the underlying income and expenses of the company. (I am actually simplifying an even more complex situation, because you have to deal with the double counting of wages actually paid. Dividends are not counted (see above), but if these (or net wages for that matter) are not spent, they too become capital.) You also look at the underlying assets in the company for capital, but can disregard any assets that are used for the trade, including cash in a business bank account (which is why there might be substantial retained profits, but they are disregarded as they are represented by such assets). If the claimant were a sole trader, the business assets of the sole trade would be similarly disregarded.

Property is similar, in that you ignore net rent for calculating income and just look at the capital value of the property, less debt, and you can see why a decision maker might be persuaded that a property with a 75% mortgage and a tenant you can't evict for 6 months at least could be regarded as of little or no value. Nor will there be any net rent to produce new capital, if mortgage payments and other expenses exceed gross rental income.

Forgive me if I have not made myself clear. Prior to 19 March I knew nothing about UC, but have picked up a bit of knowledge along the way.

Grumpy_chap

Thanks Jeremy.
Which bank can we go to for the UC interest rate of 21%?  If we all go there, even from little beginnings, we can all be sufficiently wealthy that no-one ever qualifies for UC.

calcotti

Jeremy535897 said: The £16,000 limit on capital is not really what it seems. Capital per se is not what stops UC. UC assumes you receive an income of 20.88% per annum on capital, whether it be shares in a sole director company (but see below), or shares in Tesco, or property (unless disregarded), or money in the bank (dream on). Once you hit £16,000 capital, that assumed income kills the UC claim. 

I don’t agree with that. The £16,000 limit is exactly that. It doesn’t just apply to UC but to all means tested working age benefits (except Council Tax Reduction which may have a lower limit depending on local rules and Tax Credits which have no capital limits). As such it predates UC. The limit has been fixed for a number of years even when the benefit amounts have changed.
The tariff income which is applied to capital between £6,000 and £16,000 is not based on an expected return on capital but assumes that it is reasonable for claimants to draw down on capital in excess of £6,000 to subsidise their living expenses (in addition to any income they may get from it).

Jeremy535897

Grumpy_chap said:

Thanks Jeremy.
Which bank can we go to for the UC interest rate of 21%?  If we all go there, even from little beginnings, we can all be sufficiently wealthy that no-one ever qualifies for UC.

I doubt it would be one that offered the FSCS protection up to £85,000....

Grumpy_chap

At that interest rate, we will be able to sneer at the £85k protection as an object of ridicule as we look out of the Range Rover.

Jeremy535897

calcotti said:

Jeremy535897 said: The £16,000 limit on capital is not really what it seems. Capital per se is not what stops UC. UC assumes you receive an income of 20.88% per annum on capital, whether it be shares in a sole director company (but see below), or shares in Tesco, or property (unless disregarded), or money in the bank (dream on). Once you hit £16,000 capital, that assumed income kills the UC claim. 

I don’t agree with that. The £16,000 limit is exactly that. It doesn’t just apply to UC but to all means tested working age benefits (except Council Tax Reduction which may have a lower limit depending on local rules and Tax Credits which have no capital limits). As such it predates UC. The limit has been fixed for a number of years even when the benefit amounts have changed.
The tariff income which is applied to capital between £6,000 and £16,000 is not based on an expected return on capital but assumes that it is reasonable for claimants to draw down on capital in excess of £6,000 to subsidise their living expenses (in addition to any income they may get from it).

I was oversimplifying. The assumed income is what determines the rate of reduction in UC from capital of £6,000 (no reduction) to capital of £16,000 (no UC). I do think that the rate at which such meagre savings are expected to contribute is penal, coming from times when 20.88% would be an exceptional yield, but not miles away from reality.

calcotti

Jeremy535897 said: I was oversimplifying. The assumed income is what determines the rate of reduction in UC from capital of £6,000 (no reduction) to capital of £16,000 (no UC). I do think that the rate at which such meagre savings are expected to contribute is penal, coming from times when 20.88% would be an exceptional yield, but not miles away from reality.

M point was that the tariff income (despite the name) isn't, in my view, assumed income - it is, at least in part, a capital draw down rate.

The limits themselves last changed in 2006.

Grumpy_chap

That would make more sense, if you have capital then you are assumed to draw that down at the rate of 20% per year and the draw-down reduces UC on a pound-for-pound basis.  So £16k is then the point at which 20% draw-down reduces UC to nil, but below that UC slowly becomes available.

Jeremy535897

calcotti said:

Jeremy535897 said: I was oversimplifying. The assumed income is what determines the rate of reduction in UC from capital of £6,000 (no reduction) to capital of £16,000 (no UC). I do think that the rate at which such meagre savings are expected to contribute is penal, coming from times when 20.88% would be an exceptional yield, but not miles away from reality.

M point was that the tariff income (despite the name) isn't, in my view, assumed income - it is, at least in part, a capital draw down rate.

The limits themselves last changed in 2006.

I take your point, but the government chooses to call it an assumed yield from capital, so I think it is right to point out that the yield is unrealistic. It is also worth pointing out that, in today's money, £16,000 in 2006 is nearly £24,000.

calcotti

Jeremy535897 said:

calcotti said:

Jeremy535897 said: I was oversimplifying. The assumed income is what determines the rate of reduction in UC from capital of £6,000 (no reduction) to capital of £16,000 (no UC). I do think that the rate at which such meagre savings are expected to contribute is penal, coming from times when 20.88% would be an exceptional yield, but not miles away from reality.

M point was that the tariff income (despite the name) isn't, in my view, assumed income - it is, at least in part, a capital draw down rate.

The limits themselves last changed in 2006.

I take your point, but the government chooses to call it an assumed yield from capital, so I think it is right to point out that the yield is unrealistic. It is also worth pointing out that, in today's money, £16,000 in 2006 is nearly £24,000.

The term used by government for most benefits is "tariff income" rather than assumed yield which I think is open to interpretation whether the income is a yield or a drawdown. You are right that yield from capital as used for Uc does suggest return rather than drawdown.
It is certainly time the capital limits were reviewed. I think when the limits were revised in 2006 that was the first change since 1990 (when the lower limit was £3,000 and the upper limit £8,000)!