Theoretical Question re selling a house and benefits

happyandcontented · 15 September 2018 at 5:42PM

I visited an old friend today who has been on benefits for many years due to mental health issues. Currently, she is living with her mother but still has her own property.

Her plan is to sell the house to her daughter and son in law for £1, let them rent it out and give her the money. This will enable her to stay on benefits.....to say I was gobsmacked is an understatement!

I outlined the issues that could arise from: the couple splitting up, the possible benefit fraud, the lack of capital in old age for nursing care etc, etc. She thinks the plan is foolproof!

Is it possible to sell a house for such a sum?
Would it be seen as deprivation of capital?
How could they find out?

Any other comments?

happyandcontented · 15 September 2018 at 5:57PM

Sunny_Intervals wrote: »

If she currently owns a property that she isn't living in, shouldn't it already be affecting her benefits? I'm assuming they're income-based from the rest of the post?

I doubt she has told anyone. It was initially supposed to be a temporary arrangement but as the months have gone on she is reluctant to return home. I am not sure what benefits she is on but if she sold the house in the normal way she says they would be affected.

PasturesNew · 15 September 2018 at 6:19PM

She can sell it to them for £1.
The DSS will assume she receives full rent for it.
Her benefits will be stopped accordingly.

poppy12345 · 15 September 2018 at 6:33PM

Unless you know exactly what benefits your "friend" is claiming then no one can answer your questions and give you further advice.

Afraid_of_Kittens · 15 September 2018 at 6:58PM

1) Data Matching will automatically flag up a property has been sold for less than it was purchased for. This will launch an investigation into the person who gave it away.

2) A very sticky tax situation. Rental income is taxable. The daughter and son in law will be liable for tax on the rental income irrespective if they give it away as a gift.

3) Does she have the mental capacity to make such a decision?

4) She will be found out. It might take a few years but once she has been discovered that she has given away the property she will be treated as if she still owned the property and she has deliberately deprived herself of capital. All means tested benefits will cease.

https://www.ormerodrutter.co.uk/earning-extra-rental-income-how-will-hmrc-ever-know/

https://www.telegraph.co.uk/finance/personalfinance/tax/11697816/What-does-the-taxman-know-about-you-your-finances-and-your-lifestyle.html

This isn't a 'foolproof' plan. Others have tried and failed. The Data Matching system is geared up to catch such scams.

However.

If she isn't on means tested benefits she can give away her property and out of goodwill her daughter and son-in-law can hand over the cash and pay any tax due.

It would be simpler for the mother to rent out her property and live off the rental income and not fall foul of HMRC, DWP or her daughter conning her out of the house and rental income.

Once she willingly gives away her only asset there is nothing stopping her daughter and son in law selling it and blowing the lot.

happyandcontented · 15 September 2018 at 7:06PM

Lol at 'friend' it really isn't me!

I know she was on DLA (which is not means tested) but that was stopped so now she just receives what was the old long-term sickness benefit IVA. Her medical certificate is 'until further notice' and she hasn't worked since she was 22, she is now 59.

The rent would be paid in cash to her by her daughter.

How will the DSS know about the sale as it will be private apart from the land registry and conveyancing? I know it is public record but who actually polices that? Her son in law says it happens a lot and he works in the property sales area.

I am aware it is fraud but she believes that it is perfectly ok, and not knowing the answers to the above questions, short of someone alerting the DSS I think she might get away with it.

Afraid_of_Kittens · 15 September 2018 at 7:13PM

happyandcontented wrote: »

Lol at 'friend' it really isn't me!

I know she was on DLA (which is not means tested) but that was stopped so now she just receives what was the old long-term sickness benefit IVA. Her medical certificate is 'until further notice' and she hasn't worked since she was 22, she is now 59.

The rent would be paid in cash to her by her daughter.

How will the DSS know about the sale as it will be private apart from the land registry and conveyancing? I know it is public record but who actually polices that? Her son in law says it happens a lot and he works in the property sales area.

I am aware it is fraud but she believes that it is perfectly ok, and not knowing the answers to the above questions, short of someone alerting the DSS I think she might get away with it.

Google HMRC Connect computer system. https://en.wikipedia.org/wiki/Connect_(computer_system)

Everything is now connected HMRC, DWP etc. The sale of the property will flag up that an individual on benefit has given away an asset. There will be an investigation.

They really need to do a bit of research on Data Matching, DWP and the Connect computer system.

happyandcontented · 15 September 2018 at 7:22PM

Afraid_of_Kittens wrote: »

1) Data Matching will automatically flag up a property has been sold for less than it was purchased for. This will launch an investigation into the person who gave it away.

2) A very sticky tax situation. Rental income is taxable. The daughter and son in law will be liable for tax on the rental income irrespective if they give it away as a gift.

3) Does she have the mental capacity to make such a decision?

4) She will be found out. It might take a few years but once she has been discovered that she has given away the property she will be treated as if she still owned the property and she has deliberately deprived herself of capital. All means tested benefits will cease.

https://www.ormerodrutter.co.uk/earning-extra-rental-income-how-will-hmrc-ever-know/

https://www.telegraph.co.uk/finance/personalfinance/tax/11697816/What-does-the-taxman-know-about-you-your-finances-and-your-lifestyle.html

This isn't a 'foolproof' plan. Others have tried and failed. The Data Matching system is geared up to catch such scams.

However.

If she isn't on means tested benefits she can give away her property and out of goodwill her daughter and son-in-law can hand over the cash and pay any tax due.

It would be simpler for the mother to rent out her property and live off the rental income and not fall foul of HMRC, DWP or her daughter conning her out of the house and rental income.

Once she willingly gives away her only asset there is nothing stopping her daughter and son in law selling it and blowing the lot.

I pointed most of that out to her, but she has been on benefits for so long that she cannot see life without them and sees this as a way out.

TELLIT01 · 15 September 2018 at 7:27PM

A lot of assumptions to be made but....
If she is claiming Income Related benefits and has a property she isn't living in it would be classed as an asset (capital) unless it is up for sale. If it isn't, and her change of circumstance hasn't been reported, she is already commiting benefit fraud.

If she sells the house for less than market value with the intention of being able to continue to claim benefits, it will almost certainly be classed as deprivation of capital and she will lose benefits.

poppy12345 · 15 September 2018 at 7:28PM

happyandcontented wrote: »

I know she was on DLA (which is not means tested) but that was stopped so now she just receives what was the old long-term sickness benefit IVA. Her medical certificate is 'until further notice' and she hasn't worked since she was 22, she is now 59.

I have no idea what IVA is... ESA is the benefit people claim when they're unfit for work, previously called Incapacity benefit.

happyandcontented · 15 September 2018 at 7:32PM

poppy12345 wrote: »

I have no idea what IVA is... ESA is the benefit people claim when they're unfit for work, previously called Incapacity benefit.

And before that ( when I worked for what was then the DHSS) it was called Invalidity Allowance.

Theoretical Question re selling a house and benefits

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