Rental income and UC question 23 June at 11:25AM in Benefits & Tax Credits 6 replies 276 views

ellenpal

Hi all, 
Here's a scenario that I can't quite work out. Just need your expertise please!

Partner and I bounght a buy to let home with a mortgage in another country many years ago. It is rented out on an annual lease and gives a very small monthly income, minus the mortgage and property management expenses. 

In the UK, we don't own a home and are private tenants. Fast forward several years, partner becomes disabled, gets on PIP and is unable to work for the time being. We are thinking of claiming for UC but we don't know how the foreign rental property would be considered. Would we not qualify for the housing benefit element because we own the home, but don't live there? Would it just be treated like a regular monthly income? Thank you all! 

calcotti

The foreign rental property is a capital asset. If you capital is worth more than £16,000 you are not eligible for UC.

if you put the property on the market it can be disregarded for up to six months (or longer if DWP decide it is reasonable to extend the disregard).

Your partner can look at claiming new style ESA which is not means tested. they will need to have a full NI record for 2019-20 and 2020-21 to be eligible.

ellenpal

calcotti said:

The foreign rental property is a capital asset. If you capital is worth more than £16,000 you are not eligible for UC.

Thank you for this information. Would they take the value minus the remaining mortgage to work out the capital gains value? It wouldn't be worth selling as the housing prices are not much improved since we bought it! but it does give a tiny income. 

calcotti

ellenpal said: Would they take the value minus the remaining mortgage to work out the capital gains value? 

The value of the property would be taken as the current market value, minus the outstanding mortgage minus an allowance of 10% of the property value for the costs of selling.

The income from the rent would be ignored as income for UC purposes.

ellenpal

Thank you, I just want to make sure I am understanding correctly. So theoretically, we could keep it as a rental if the capital gains have been calculated under £16k?  

calcotti

ellenpal said:

Thank you, I just want to make sure I am understanding correctly. So theoretically, we could keep it as a rental if the capital gains have been calculated under £16k?  

It's nothing to do with capital gain. It's the current capital value as determined in the way previously described. If your total capital is under £16,000 then you are eligible for UC. Whether or not there is any UC entitlement will then depend on the rest of your circumstances.

Alice_Holt

ellenpal said:

Thank you, I just want to make sure I am understanding correctly. So theoretically, we could keep it as a rental if the capital gains have been calculated under £16k?  

        Nothing to do with capital gains. 

   It's the net value of the property that's important for UC - as that forms part of your savings / capital.

     Say  -    BTL Property valued @   £70k
                 Less 10% allowance        (£7k)
                Less Mortgage                 (£45k)

    Value of property                            £18k
    Your Bank account & savings, say  £2k

   In this example your savings @ £20k exceed the £16k savings limit for UC, so no UC claim possible.


 If you sell the property and after repaying the mortgage, selling and legal fees you realise, say, £15.5k
Add this to your existing savings and you have £17.5k, so again no eligibility for UC.

When your savings are below £16k you may be eligible to claim UC.