Any financial help if you are self employed but also have rental income

Grumpy_chap

So, apart from the obvious obstacle, I could take £1m and buy 4 flats at £250k each, mortgage free, rent out at £1250 each per month, so nett £4k monthly, spend whatever I wish from the £4k (which is not income), and still claim UC?

The way triple-Matt put it makes more sense.

calcotti

MattMattMattUK said:

You can claim New Style Jobseekers Allowance if you have the relevant NI contributions and seek employment, apart from that not really, you have a large asset which you could sell. If you put the property on the market then it is disregarded for a UC calculation for 26 weeks, but if you still have an income from it that would factor into any UC calculation.

https://www.entitledto.co.uk/help/Own-other-property

As advised by Jeremy earlier, the rental income would be treated as capital, not income. Therefore if it is spent each month as it comes in it will have no impact on a UC claim.

So if the property is put on the market it can be disregarded and if this means your capital is less than £16,000 you can claim UC and the rental income will be ignored. If some of this income remains at the end of the month you will need to report a change in capital.

[Deleted User]

Grumpy_chap said:

So, apart from the obvious obstacle, I could take £1m and buy 4 flats at £250k each, mortgage free, rent out at £1250 each per month, so nett £4k monthly, spend whatever I wish from the £4k (which is not income), and still claim UC?

The way triple-Matt put it makes more sense.

Where in the country are there flats that cost £250k yet rent for £1250?  That seems unrealistic to me.   Figures that would make sense here in the South would be more like £400k/£1250, or £225k/£750.  But I'd be interested to be corrected.

calcotti

Grumpy_chap said:

So, apart from the obvious obstacle, I could take £1m and buy 4 flats at £250k each, mortgage free, rent out at £1250 each per month, so nett £4k monthly, spend whatever I wish from the £4k (which is not income), and still claim UC?

No because 'spending whatever you wish' may then be treated as deprivation of capital.

Grumpy_chap said: The way triple-Matt put it makes more sense.

You may think that but it's not what the regulations say.
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/932332/admh5.pdf

H5093 Where a claimant is treated as being in receipt of income yielded from capital then any actual income derived from that capital has to be treated as capital from the date it is due to be paid to the claimant. It cannot be treated as income.

H5094 The types of income which might be derived from capital include 
1. interest
2. dividends and
3. rental income.
...
Example 2
Scoot owns a second property which he does not live in as his home. Scoot rents the property and receives rental income as a result. For UC, the capital (the second property in this example) is treated as yielding an income and the actual income derived from that capital (the rental income) is treated as part of Scoot’s capital from the date it is due to be paid.

Jeremy535897

Poster_586329 said:

Grumpy_chap said:

So, apart from the obvious obstacle, I could take £1m and buy 4 flats at £250k each, mortgage free, rent out at £1250 each per month, so nett £4k monthly, spend whatever I wish from the £4k (which is not income), and still claim UC?

The way triple-Matt put it makes more sense.

Where in the country are there flats that cost £250k yet rent for £1250?  That seems unrealistic to me.   Figures that would make sense here in the South would be more like £400k/£1250, or £225k/£750.  But I'd be interested to be corrected.

This is wrong. If you read what I said, the flats in your example would have to be valued at nil for UC to escape being counted towards the £16,000 capital limit. That can only happen where it is temporarily accepted that the flats are worth nil due to the difficulties in the market, or the mortgage equals the value. In your example, if you were able (most unlikely) to buy 4 flats for £1 million with £1 million of mortgage, you might get a rental yield (net of costs before finance) of around 4%, and mortgage interest of say 3% at best (and the reduction in tax relief would probably swallow up the 1%). So your capital would be nil, and your net rental would be nil and would not add to capital, and your UC would be unaffected.

In the more conventional case of someone with a modest property with a sitting tenant and an 80% mortgage, it was sometimes possible in the first lockdown to persuade DWP that it had no value as it was unrealisable in a reasonable time at a figure above the mortgage. There might be a modest net income, which is not treated as income, but is treated as added to capital. If it was spent inappropriately, it would be treated as unspent.

Grumpy_chap

"Example 2
Scoot owns a second property which he does not live in as his home. Scoot rents the property and receives rental income as a result. For UC, the capital (the second property in this example) is treated as yielding an income and the actual income derived from that capital (the rental income) is treated as part of Scoot’s capital from the date it is due to be paid."

OK, so I take my (sadly theoretical) £1m and buy three flats at £330k each, renting out at £1,250 / month each so generate a nett monthly income of £3k.  That income is then treated as 're-invested' so increases the capital rather than being treated as income.  However, the capital £1m plus the £3k is considered as generating an income at some (notional) rate and that resulting notional income figure is used for the UC assessment.  So, all I have to do is argue that the realisable value of the £1m property portfolio is actually "zero" and that reduces the notional income figure used in the UC assessment.

Given that I have determined the capital as "zero" and managed to get that agreed, I can spend the £3k income because it cannot be "deprivation of capital" because capital is already "zero" and cannot be deprived below that.

Sounds absurd and open to abuse if you ask me.  Only one obstacle to stop me jumping on the bandwagon.

Jeremy535897

Grumpy_chap said:

"Example 2
Scoot owns a second property which he does not live in as his home. Scoot rents the property and receives rental income as a result. For UC, the capital (the second property in this example) is treated as yielding an income and the actual income derived from that capital (the rental income) is treated as part of Scoot’s capital from the date it is due to be paid."

OK, so I take my (sadly theoretical) £1m and buy three flats at £330k each, renting out at £1,250 / month each so generate a nett monthly income of £3k.  That income is then treated as 're-invested' so increases the capital rather than being treated as income.  However, the capital £1m plus the £3k is considered as generating an income at some (notional) rate and that resulting notional income figure is used for the UC assessment.  So, all I have to do is argue that the realisable value of the £1m property portfolio is actually "zero" and that reduces the notional income figure used in the UC assessment.

Given that I have determined the capital as "zero" and managed to get that agreed, I can spend the £3k income because it cannot be "deprivation of capital" because capital is already "zero" and cannot be deprived below that.

Sounds absurd and open to abuse if you ask me.  Only one obstacle to stop me jumping on the bandwagon.

You can't argue 3 flats worth £1 million are worth zero. They are worth more than £16,000, and that eliminates your UC claim. Even ignoring that, you will not be able to spend the monthly income sufficiently quickly on legitimate outgoings to avoid it being counted as capital. Even if you could argue the flats were worth zero (and since you have just paid £1 million for them, that would be ridiculous), that does not entitle you to say the actual income arising does not become capital.

calcotti

Grumpy_chap said: Given that I have determined the capital as "zero" and managed to get that agreed, 

But generally you will not be able to do that. There was a brief period during the first lockdown when the property market was effectively closed and some people appear to have been given a temporary disregard on the grounds that the realisable value was effectively zero at that point. You can’t extrapolate that into a general situation. Normally the only other occasion on which property would have zero value is if there is a mortgage of 90% of the open market value in which case the remaining 10% would be swallowed by the sales cost allowance. But with that level of mortgage the rental income would probably be largely servicing the mortgage.

Grumpy_chap

I accept my figures are extreme, in part to show the absurdity, but I think the logic is now as the example of Scoot would work.

Is the income that is not income but pretending to be capital subject to income tax?

Jeremy535897

Grumpy_chap said:

I accept my figures are extreme, in part to show the absurdity, but I think the logic is now as the example of Scoot would work.

Is the income that is not income but pretending to be capital subject to income tax?

No. The actual net rental income is. Just think of the rental property as a savings account. You don't put interest received on a bank account in your UC income figures (but of course it does add to the balance and become capital). Instead you deem a level of income arising that means that once your bank account (together with any other capital) has £16,000 in it, you get no UC. A rental property is the same, as are shares, but you can't convert rental property or shares into food on your table, and so in certain rare circumstances they might be regarded as having no value ascribed to them.