Universal credit: refusing legacy = deprivation of capital?

andrewmp

Newcad said:

Paying off debts is not DoC for Universal Credit.

However "Intentionally" creating debts to deliberately avoid DoC is a different matter.

As I said above INTENTION is all important.

I'm pretty sure what the DWPs view on that would be.

If you disagree then go ahead and see what a Tribunal rules when the DWP says that it's deprivation.

I don't see how it would ever get as far as a tribunal. They have to apply the UC regulations and they state that repaying debt is never considered deprivation of capital. 

As soon as someone who knows the regulations sees it then they would realise there's been no deprivation. 

If it somehow got to a tribunal then they have to apply the regulations which are very clear.

andrewmp

Muttleythefrog said:

Newcad said:

Paying off debts is not DoC for Universal Credit.

However "Intentionally" creating debts to deliberately avoid DoC is a different matter.

As I said above INTENTION is all important.

I'm pretty sure what the DWPs view on that would be.

If you disagree then go ahead and see what a Tribunal rules when the DWP says that it's deprivation.

I rather suspect you'd be right... otherwise DoC becomes a nonsense.... people could simply manufacture a debt (including with a friend never mind a company) and pay it off with any excess monies. Motivation would surely be looked at regardless of the fact paying off a debt cannot typically be considered DoC and order of events may be important (especially since people on UC may struggle to create debts due to affordability). If there ever was to be case law to the contrary then I imagine the law would simply be tightened surrounding manufacturing a debt (such as by buying lots of TV sets from a buy now pay later vender or booking holidays for the next 10 summers) to leave decision makers or tribunals having to consider whether the debt was legitimate and made sense to the claimant to acquire/accrue...i.e.. consider purely whether the spending/debt creation was legitimate/made sense for the claimant regardless of how it would be paid for (bring forward the consideration of deprivation to arrive at notional capital as a step to always consider prior to repayment).  Lack of specific case law for UC where the 'paying off debt is never considered DoC' may suggest it'll rarely be tested in the ways suggested.

It's never been tested because it'll never get that far. Pension Credit have had similar rules for decades now and it's never been tested there either. There's nothing to test, the regulations are very clear.

Manufacturing a fake debt with a friend would be very risky though, but that's a different matter.

Maybe the regulations should be changed to close the purchase/debt loophole like you describe, I would be inclined to agree.   The regulations are the regulations though and talk of intent is nonsense as there is no deprivation of capital in the first place.

Muttleythefrog

andrewmp said:

Muttleythefrog said:

Newcad said:

Paying off debts is not DoC for Universal Credit.

However "Intentionally" creating debts to deliberately avoid DoC is a different matter.

As I said above INTENTION is all important.

I'm pretty sure what the DWPs view on that would be.

If you disagree then go ahead and see what a Tribunal rules when the DWP says that it's deprivation.

I rather suspect you'd be right... otherwise DoC becomes a nonsense.... people could simply manufacture a debt (including with a friend never mind a company) and pay it off with any excess monies. Motivation would surely be looked at regardless of the fact paying off a debt cannot typically be considered DoC and order of events may be important (especially since people on UC may struggle to create debts due to affordability). If there ever was to be case law to the contrary then I imagine the law would simply be tightened surrounding manufacturing a debt (such as by buying lots of TV sets from a buy now pay later vender or booking holidays for the next 10 summers) to leave decision makers or tribunals having to consider whether the debt was legitimate and made sense to the claimant to acquire/accrue...i.e.. consider purely whether the spending/debt creation was legitimate/made sense for the claimant regardless of how it would be paid for (bring forward the consideration of deprivation to arrive at notional capital as a step to always consider prior to repayment).  Lack of specific case law for UC where the 'paying off debt is never considered DoC' may suggest it'll rarely be tested in the ways suggested.

It's never been tested because it'll never get that far. Pension Credit have had similar rules for decades now and it's never been tested there either. There's nothing to test, the regulations are very clear.

Manufacturing a fake debt with a friend would be very risky though, but that's a different matter.

Maybe the regulations should be changed to close the purchase/debt loophole like you describe, I would be inclined to agree.   The regulations are the regulations though and talk of intent is nonsense as there is no deprivation of capital in the first place.

The chances are you'll see few cases because of the very limited ones to be tested. UC claimants tend to lack resource and hence here for one we tend to see really the issues of DoC arising surrounding events that are unusual or one offs like inheritances... or those borderline cases of always struggling to spend benefits as they receive them to keep below limits.

The regulations are not as clear as people are making out because they include terms that are open to debate... the government website itself tries to define what is debt. We see just the same issues of defining terms in PIP and regarding the WCA.. but of course we get to see far more case law on such as there are millions of claimants having the rules applied to them and often many times... upper tribunals are often engaged. In circumstances of potential DoC the DWP may only be aware of a tiny fraction of potential cases as it tends to rely on people flagging up the potential or on scrutiny that is broadly speaking rarely applied by UC as they lack the resources.

"reducing or paying a debt owed by the person" is entirely open to interpretation of what is debt and what is a debt owed by the person. Some debts as example may look more like financial arrangements...is hire purchase a debt (probably.. but actually you could just return the goods which you don't own and there is no debt to pay).. some debts may not become 'live' until a specific date or condition (what happens if you try to pay it early.. goodwill... sensible financial planning.. gentleman's agreement).... and then there is the issue of who actually owes the debt... or whether it is a legitimate debt... why do you think my debt with my friend is fake when I'll have it witnessed by a solicitor (possibly drawn up by another one) and it'll spell out the services I expect (they'll ring me every weekend to say hello how are you and offer to bring a sandwich around if I'm hungry.. being lonely as I am and needing social support) in exchange for owing monies.

Let me give example.... like most we pay some council tax and other bills... my wife and I get Universal Credit...let's imagine I've had a bit of a difficult time and find myself unable to pay those bills and council tax next month which I usually do... let's imagine my wife on the other hand has not been out much and finds herself after her UC payment sitting with £7k. She offers to pay the bills taking her back below £6k by the end of the assessment period conveniently to avoid needing to declare having over £6k savings and losing some of her UC. This all seems quite regular as we're joint Universal Credit claimants and either/ both could surely be considered to owe the debt.... well that used to be true... but now we're in separate households (same property which we jointly own) with separate claims and separated legally... we also have a separation agreement that we've signed and which specifies which household bills I pay (all of them!) So would she be paying a debt owed by the person or owed by another person... she uses the electricity... she lives here accruing the council tax (I don't count as I have SMI)... she uses the water... she is legally obligated to pay leasehold maintenance fees along with me according to our legally binding lease. So we have a signed agreement as a result of our separation specifying the bills I will pay... that somewhat conflicts with at least one legal agreement we have with a 3rd party... and now I can't honour the separation agreement this month... she will have to pay everything... whether it is considered her debt or not she risks facing losing her (our) services or even her (our) home if she does not pay. What if we set up another agreement saying she will pay this month's bills regardless of any binding agreements or legalities and that I now have a debt with her to repay what she shouldn't have paid... which I can then conveniently use to double up on payments next month and accept the inheritance of £8k I knew I'd be getting (and so need to rapidly get rid of around £2k) Oh I've forgotten to mention.. we're massively in credit with our energy account.. are we paying debt or just saving money in another account?

So that's two people conspiring to ensure they both separately retain their full UC award by paying off 'their debts'... or perhaps just trying to deal with circumstances presenting to get through a couple months. People can live complex lives.. have complicated experience... bringing the legal application of terms not always straightforward. The reality is if such a case as I described arose UC would not realistically detect any issue over capital (they would not see bills being paid.. they would not see background agreements legal or informal.. they would only ever potentially see bank statements in a review which showed bills being paid for household which would be what they expect to see) and so no decisions would be taken by anyone on determining what went on and were people paying their debts. (And yes this was a manufactured case... aside from the separation matters and I do pay all the bills... that's part of the arrangement of her providing care and getting a monthly payment).

"purchasing goods or services if the expenditure was reasonable in the circumstances of the person's case." - is I would suggest even more open to interpretation and subjectivity but at least avoids the issue of defining debt...lol... or maybe not.. is my hire purchase of 10 TV sets just debt being repaid or unreasonable spending. Would it be reasonable for a socially isolated disabled person to pay £1k a month to the only person they trust to spent an hour a week with them... who knows... it sounds very expensive but it could be the difference between making life worth living and suicide.

Notional capital rule elements (Re: not deprivation of capital) quoted from https://www.legislation.gov.uk/uksi/2013/376/regulation/50

kaMelo

Although you manufactured a case it is absolutely true that some people lead complex lives, overly complex sometimes. To try to account for every scenario the regulations, like all laws really, are written in a vague way to allow for interpretation. To write them in a prescriptive way would leave loopholes, things they never thought of or things that don't currently exist, to exploit and would require the law to be constantly updated.

Whilst the regulations are clear, paying off debt is never deprivation of capital, I agree with @Muttleythefrog in that what is 'debt' can be open to interpretation. A Mortgage, loan to the bank or credit card balance for example is a business transaction, borrowing money from a third party whose course of business is to lend money. These are clearly legitimate debts and I highly doubt anyone would try question otherwise.  Borrowing money from a friend/relative, even if documented and witnessed by a third party, is in my opinion not as clear cut. One would have to look at the bigger picture to determine it's legitimacy.

Ultimately though there is always what I think of as the good faith test someone should ask themselves. It's not definitive and not written in any rulebook however I believe it's a good test as to whether someone is being genuine or trying to manipulate a situation to fit the rules.  
Imagine for a moment that there is no benefit system, would your actions be the same then?

andrewmp

kaMelo said:

Although you manufactured a case it is absolutely true that some people lead complex lives, overly complex sometimes. To try to account for every scenario the regulations, like all laws really, are written in a vague way to allow for interpretation. To write them in a prescriptive way would leave loopholes, things they never thought of or things that don't currently exist, to exploit and would require the law to be constantly updated.

Whilst the regulations are clear, paying off debt is never deprivation of capital, I agree with @Muttleythefrog in that what is 'debt' can be open to interpretation. A Mortgage, loan to the bank or credit card balance for example is a business transaction, borrowing money from a third party whose course of business is to lend money. These are clearly legitimate debts and I highly doubt anyone would try question otherwise.  Borrowing money from a friend/relative, even if documented and witnessed by a third party, is in my opinion not as clear cut. One would have to look at the bigger picture to determine it's legitimacy.

Ultimately though there is always what I think of as the good faith test someone should ask themselves. It's not definitive and not written in any rulebook however I believe it's a good test as to whether someone is being genuine or trying to manipulate a situation to fit the rules.  
Imagine for a moment that there is no benefit system, would your actions be the same then?

The part in bold is still questioned regularly by many online. The amount of times you hear people bring up irrelevant stuff such as immediacy of debt and reasonableness when it's not at all relevant to repayment of debt for UC is staggering. 

I'm not sure if they just can't get their heads around the fact legacy benefit case law was built around the part in bold not existing and still try to apply the same logic to something that is very clearly stated in the regulations. 

NedS

I would put forward the following example to show how what may appear to be straight forward rules may get interpreted differently.

Assume I have an inheritance of £20,000 coming, and I know this will end my entitlement to means-tested benefits (UC). I have no debts I can pay off.

I've always wanted to go on a round the world cruise or own a Rolex watch (insert your pleasure here), and now I can afford to do just that, with my £20k inheritance. The only problem is that this will be classed as deprivation of capital, and UC will treat me as if I still have that capital and end my UC claim. Simple, right?

What if I pay for my cruise or Rolex using my credit card? I now have £20k of credit card debt, and paying off debt is never deprivation of capital. My intention is clear - that is to deprive myself of that capital so I can continue to claim UC.

As others have stated above, I'm pretty sure DWP would view this as deprivation of capital and would make the decision to end the claim as not entitled. The claimant would then have to take it to tribunal for an independent magistrate to rule on it. I would of course argue that "paying off debt is never deprivation of capital".

Both sides have viable arguments when considering only the rule that applies to their argument. Good luck to the magistrate making a ruling on that. The question the tribunal needs to rule on is whether the way the debt was incurred can ever be considered as relevant.

Muttleythefrog

NedS said:

I would put forward the following example to show how what may appear to be straight forward rules may get interpreted differently.

Assume I have an inheritance of £20,000 coming, and I know this will end my entitlement to means-tested benefits (UC). I have no debts I can pay off.

I've always wanted to go on a round the world cruise or own a Rolex watch (insert your pleasure here), and now I can afford to do just that, with my £20k inheritance. The only problem is that this will be classed as deprivation of capital, and UC will treat me as if I still have that capital and end my UC claim. Simple, right?

What if I pay for my cruise or Rolex using my credit card? I now have £20k of credit card debt, and paying off debt is never deprivation of capital. My intention is clear - that is to deprive myself of that capital so I can continue to claim UC.

As others have stated above, I'm pretty sure DWP would view this as deprivation of capital and would make the decision to end the claim as not entitled. The claimant would then have to take it to tribunal for an independent magistrate to rule on it. I would of course argue that "paying off debt is never deprivation of capital".

Both sides have viable arguments when considering only the rule that applies to their argument. Good luck to the magistrate making a ruling on that. The question the tribunal needs to rule on is whether the way the debt was incurred can ever be considered as relevant.

lol... yes.... I would imagine first it'd come down to which of the 2 conditions takes precedence...
"purchasing goods or services if the expenditure was reasonable in the circumstances of the person's case."
"reducing or paying a debt owed by the person"

I would imagine since the action was first to purchase goods (Rolex watch for £20k let's imagine) rather than pay a debt (which would have to take place afterwards by at least a couple of working days due to time delay of transactions lodging on credit card accounts) then they'd rule it was unreasonable spending (unless claimant could convince it was reasonable for them).

But then the judge would have to consider the issue that they didn't actually deprive themselves of capital as they never had it in using a credit card for payment. It would be different if paying with regular bank card. So although the purchase was unreasonable they haven't actually used capital to make that purchase - this would be demonstrated by fact if they had to declare capital before and after the transaction it would be materially the same.

So then surely a judge would have to consider whether they paid a debt with capital they actually did have (the newly received inheritance of £20k soon after buying the watch) - and that should be a simple ruling of yes as I think we can generally agree owing money on a credit card is clearly debt repayable.

So likely no DoC although the motivations may be pretty clear the actions were to retain benefits rather than having a pathological obsession with glamorous watches. That's at face value how I'd imagine it'd be looked through legally but I could be completely wrong given the array of cancer related drugs I'm on...lol. Would an alternative view take a line that "expenditure" itself is a term open to interpretation and that it could include monies initially arising in the form of a debt (plenty definitions I can see online would include that.. even our own government surely would include adding to its debts as expenditure)... would that result in them therefore being regarded as having notional capital before any issue of paying debt is considered.... complicated. Yes I wouldn't like to be the magistrate or equivalent either! I think many of us have seen quite a bit of case law.. including on DoC but as suggested above most relate to non UC benefits where the repayment of debt issue is differently applied (the law is different) and so they're materially useless cases to the scenarios presenting as the difference is typically relevant. 

(I always advise claimants spend on credit cards.... often more legal protection.. less scrutiny by DWP of activities... less chance of DoC.. always pay off in full each month of course)

Grumpy_chap

Muttleythefrog said:

I would imagine since the action was first to purchase goods (Rolex watch for £20k let's imagine) rather than pay a debt (which would have to take place afterwards by at least a couple of working days due to time delay of transactions lodging on credit card accounts) then they'd rule it was unreasonable spending (unless claimant could convince it was reasonable for them).

It might not be as simple as that.
The query around buying Rolex watches (or Kruggerand coins) arises from time to time as a means to keep below the savings thresholds for UC and personal effects not being classed as capital.

Regardless of the discussion around the DoC, is the individual on UC, with the expected £20k inheritance, realistically going to be in a position to obtain £20k of unsecured / credit-card debt with which to buy the £20k Rolex so that they can then receive the £20k inheritance and use it to pay off debt?

Secondly, the individual would have inherited the £20k that they could spend on more mundane things that are needed / wanted and now has a Rolex which, if they sell to release funds to spend on more mundane things that are needed / wanted will put the £20k in the bank and, hence, back to square one.

Exodi

So I'm clear, are we saying that if I receive a large inheritance and claim UC, then use the money to buy a helicopter to do the school run so my UC isn't cut = clear-cut DoC, but if I take out finance on the helicopter for 1 day and then repay the finance = in the clear son, here's your UC?

Muttleythefrog said:
(I always advise claimants spend on credit cards.... often more legal protection.. less scrutiny by DWP of activities... less chance of DoC.. always pay off in full each month of course)

This doesn't read well, almost sounds like you're complicit.

kaMelo

NedS said:

I would put forward the following example to show how what may appear to be straight forward rules may get interpreted differently.

Assume I have an inheritance of £20,000 coming, and I know this will end my entitlement to means-tested benefits (UC). I have no debts I can pay off.

I've always wanted to go on a round the world cruise or own a Rolex watch (insert your pleasure here), and now I can afford to do just that, with my £20k inheritance. The only problem is that this will be classed as deprivation of capital, and UC will treat me as if I still have that capital and end my UC claim. Simple, right?

What if I pay for my cruise or Rolex using my credit card? I now have £20k of credit card debt, and paying off debt is never deprivation of capital. My intention is clear - that is to deprive myself of that capital so I can continue to claim UC.

As others have stated above, I'm pretty sure DWP would view this as deprivation of capital and would make the decision to end the claim as not entitled. The claimant would then have to take it to tribunal for an independent magistrate to rule on it. I would of course argue that "paying off debt is never deprivation of capital".

Both sides have viable arguments when considering only the rule that applies to their argument. Good luck to the magistrate making a ruling on that. The question the tribunal needs to rule on is whether the way the debt was incurred can ever be considered as relevant.

I think the timeline is important to determine motivation. If the purchase(s) were made with full knowledge of a future inheritance then to me, their motivation is clearly manipulation of their situation to fit the rules.

Having said that, judges hold DWP/local authorities to a very high bar in terms of proof, even though it doesn't pass the smell test I don't think it would be easy to prove.