Non-priority debts and deprivation of capital

MrHeisenberg

Just been reading this housing allocations policy, and this doesn't seem right to me:

"As part of the application process bank account and savings details must be provided and, if it is found that an applicant has recently held £16,000 or more in their account and has spent or transferred large amounts on non-priority debts the applicant will normally be considered to have deliberately worsened their circumstances..."

https://www.breckland.gov.uk/media/21471/Breckland-Council-Allocations-Policy/pdf/Breckland_Council_Allocations_Policy_updated_04.06.25docx.pdf

I believe the £16,000 limit is based on the means-test regulations in respect to state benefits. The current guidance in that regard states as follows:

"A claimant is not treated as depriving themselves of capital if they:

• use it to reduce or pay a debt owed by them; or

• purchase goods or services if the expenditure was reasonable in the circumstances of their case"

https://data.parliament.uk/DepositedPapers/Files/DEP2023-0365/053_Deprivation_of_capital_V4-0.pdf

I believe this is based on section 50 of the Universal Credit Regulations 2013, which states as follows:

"50. —(1) A person is to be treated as possessing capital of which the person has deprived themselves for the purpose of securing entitlement to universal credit or to an increased amount of universal credit.

(2) A person is not to be treated as depriving themselves of capital if the person disposes of it for the purposes of—

(a) reducing or paying a debt owed by the person; or

(b) purchasing goods or services if the expenditure was reasonable in the circumstances of the person's case."

There seems to be case law on this too:

"The importance of the point is that, if the tribunal are satisfied that the payment of £3,655 was properly made in reduction or discharge of debts owed by the claimant to his daughters, then in my judgment, regulation 4(1) cannot apply on any footing. A person has to pay his debts. He has no choice in the matter and if he has no choice, then any divesting of capital resources in pursuance of the reduction or discharge of his indebtedness cannot be for the purpose of securing supplementary benefit or any increase thereof. Such a motive cannot direct or influence his course of action. There can only be one purpose governing his conduct, namely the need to meet his indebtedness.

Of course, the above principle only applies where the relevant debt is immediately payable. If the obligation to repay does not mature for several years, or, as in the case of the usual mortgage of house property, there is no need to repay the sum borrowed, provided the agreed interest and capital repayments are kept up, then any premature repayment of indebtedness will be a voluntary act constituting a deliberate choice. And if there is a choice then the question will arise as to whether a significant operative purpose albeit not necessarily the predominant purpose, was to secure supplementary benefit or any increase thereof (R(SB) 38/85; R(SB) 40/85).

In the present case, if the tribunal find as a fact that the claimant was genuinely indebted to his daughters, and they must be satisfied that there was a legal debt capable of enforcement in the courts, and if they are satisfied that such debt was immediately repayable, then as regards any sum employed in reduction or discharge of that indebtedness, regulation 4(1) will have no application. But if the new tribunal are not so satisfied, and consider that there was no such indebtedness enforceable at law, or, if there was, that it was not immediately repayable, they must then go on to consider whether a substantive reason for the payment to the daughters was to secure supplementary benefit. Of course, normally in any given case there is no direct evidence on this particular point and accordingly the tribunal are required to consider all the circumstantial evidence, including the claimant's familiarity with the supplementary benefit system. In particular, they must be satisfied, if regulation 4(1) is to apply, that the claimant realised that there was a capital limit, which his capital resources could not exceed without depriving him of entitlement to benefit. In deciding whether the claimant knew of the limit, the fact that, as in the present case he was in receipt of form B3, which in turn refers to form UBL18 and SB9, will be a material consideration. A further factor to be taken into account in the present instance will be that the claimant is an accountant, with a corresponding educational standing. If at the end of the day the new tribunal are satisfied that the claimant did know of the capital limit, then they must determine, making appropriate findings of fact and giving adequate reasons, whether a significant operative purpose for his action, over and above the advancement of his daughters, was the securing of supplementary benefit. They will have to look at all the surrounding circumstances, and make appropriate inferences.":

https://www.bailii.org/uk/cases/UKSSCSC/1991/CSB_1198_1989.html

It seem the above case related to a non-priority debt. 

Any thoughts?

kimwp

Not an expert, but my thoughts on what you have posted are:

The pdf relates to housing allocations, whereas the state benefits rule applies to state benefits. These are two different things, despite the fact that £16,000 is the capital amount allowed before entitlement ceases to exist for both. The fact that it implies that the £16,000 is based on the state benefit benefit allowance doesn't mean that all of the state benefit rules apply. 

The case notes that you quote state:
"course, the above principle only applies where the relevant debt is immediately payable. If the obligation to repay does not mature for several years, or, as in the case of the usual mortgage of house property, there is no need to repay the sum borrowed, provided the agreed interest and capital repayments are kept up, then any premature repayment of indebtedness will be a voluntary act constituting a deliberate choice"

marcia_

 Universal credit rules and housing allocation rules may well differ in their opinion of deprivation.  

MrHeisenberg

kimwp said:

Not an expert, but my thoughts on what you have posted are:

The pdf relates to housing allocations, whereas the state benefits rule applies to state benefits. These are two different things, despite the fact that £16,000 is the capital amount allowed before entitlement ceases to exist for both. The fact that it implies that the £16,000 is based on the state benefit benefit allowance doesn't mean that all of the state benefit rules apply. 

The case notes that you quote state:
"course, the above principle only applies where the relevant debt is immediately payable. If the obligation to repay does not mature for several years, or, as in the case of the usual mortgage of house property, there is no need to repay the sum borrowed, provided the agreed interest and capital repayments are kept up, then any premature repayment of indebtedness will be a voluntary act constituting a deliberate choice"

True, it is all very confusing and hard to understand.

itsthelittlethings

Why don’t you just contact them and ask about your own situation?

MrHeisenberg

marcia_ said:

 Universal credit rules and housing allocation rules may well differ in their opinion of deprivation.  

Indeed. I suspect, though, that the people that drafted that policy didn't understand the state benefit principles relating to the depravation of capital, but they are arguably difficult to understand. The Universal Credit rules don't seem to differentiate between non-priority debts and priority debts, and what is immediately repayable and what is not, too.

I want to pay off some of my non-priority debts, especially if I am given a good settlement offer by the debt collection agency, but don't want that to be held against me at some point in the future, especially as I am claiming Universal Credit. It doesn't seem right, though, that people should not be able to settle their debts whilst claiming state benefits whilst looking for social housing. Indeed, some housing associations look at how well you have been managing your finances, including debt.

MrHeisenberg

itsthelittlethings said:

Why don’t you just contact them and ask about your own situation?

They aren't my council. I just came across their policy whilst researching the subject. I have sent them an e-mail anyway asking why there is a discrepancy. 

MrHeisenberg

Their policy also seems to suggest small amounts are okay, but large amounts are not. That is another peculiarity. Also, what is a "large amount"? Very odd...

kimwp

MrHeisenberg said:

itsthelittlethings said:

Why don’t you just contact them and ask about your own situation?

They aren't my council. I just came across their policy whilst researching the subject. I have sent them an e-mail anyway asking why there is a discrepancy. 

There isn't a discrepancy. Housing entitlement and universal credit are two different things, so can have two different sets of rules.

marcia_

kimwp said:

MrHeisenberg said:

itsthelittlethings said:

Why don’t you just contact them and ask about your own situation?

They aren't my council. I just came across their policy whilst researching the subject. I have sent them an e-mail anyway asking why there is a discrepancy. 

There isn't a discrepancy. Housing entitlement and universal credit are two different things, so can have two different sets of rules.

 Exactly this. Just because the DWP have those rules doesn't mean the housing department has to do the same, 

Sea_Shell

I'm wondering what sort of edge case it would be for someone to have more than £16000 in savings AND have debts, either priority or not. 

Why would they owe family money too?   

Son - "Mum, I know you already have £20k in savings, so here, let me lend you £5k, for ... (insert need here)"    

Mum - "But, if and when I pay you back, leaving me with only £15k of savings, will that be classed as DOA?"