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UC capital income from Disregarded property

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kittybelle
kittybelle Community member Posts: 17 Listener
Hi all I'm new here and would appreciate a bit of advice.could any of you kind people advise me if the income from a rental property is disregarded in the uc calculation?.My husband is my carer and claims income support for us both,I have a rental property which is let out to my disabled brother at a small rent of £240 per month, this along with my husband's carers allowance is deducted from our income support.Are the rules similar for UC.Thanks in advance.🙂
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  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
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    I think if the rent is taxable income it would be treated as income for UC. I don't know enough about tax rules to know if it is taxable income.
    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
  • kittybelle
    kittybelle Community member Posts: 17 Listener
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    Thank you for your quick reply appreciate it👍
  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
    edited December 2022
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    Having thought about it a bit more and I think my earlier reply is wrong and that rental income will be treated as a yield on capital and, as such, the rent will be treated as additional capital. I will try and work through the guidance tomorrow.
    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
  • kittybelle
    kittybelle Community member Posts: 17 Listener
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    Aww, thank you so much you are so kind and helpful.
  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
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    Could you confirm what benefits your brother receives.
    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
    edited December 2022
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    I’ve now gone through the guidance and have concluded that my earlier reply was correct. I’m posting my reasoning in some detail.

    It thought it helpful to first look at the guidance for IS.

    Capital: In general any property you own that you do not live in yourself is treated as capital and the capital amount is the market value less any mortgage owed and a 10% allowance for the cost of selling. If the result value exceeds £16,000 you would be excluded from claiming IS.

    Capital disregard: There is exception that allows the value of a property to be disregarded f it is occupied by a relative who is pension age or incapacitated.

    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1073432/dmgch29.pdf – see paragraph29430

    See also paragraph 29434 which notes that the law does not say what incapacitated means. The DM has to decide if partners or relatives are incapacitated and may decide they are where they are receiving AA, CAA, DLA, disability element of WTC, IB, SDA, SSP, a benefit similar to the previous or are not receiving any of those benefits at but they qualify for any one of them because of the illness or disability they have. 

    I infer that your second property is being disregarded under the above disregard.

    The rules then provide that, in general, income from capital is treated as capital (not income). This means that rental income is treated as capital and not income. However is an exception to this rule and that income which results from capital that is disregarded is to be treated as income. See paragraph 29735 and 29736

    Following the above the taking into account the rental payments made by your brother as income is correct for IS.

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    Looking then at the guidance for UC.

    The general rules regarding capital are similar meaning that owning a second property with a value of over £16,000 would generally prevent you from claiming UC. 

    Capital disregard: There is exception that allows the value of a property to be disregarded if it is occupied by a relative who is of pension age or has Limited Capability for Work.

    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1085956/admh2.pdf - see paragraph H2048

    Note that the disregard for LCW is much narrower than the ‘incapacity’ rule under IS hence my question about what benefits your bother receives.

    Income from capital: When people have capital that is below £16,000 they are treated as receiving income deemed to yield from capital (calculated as £4.35/month for every £250, or part thereof over £6,000).

    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1061722/admh5.pdf - see paragraph H5090 and H5091.

    Guidance then says (paragraph H5092) that the tariff income rule does not apply where the claimant’s capital is disregarded. Paragraph H5093 says “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”. 

    The result of that last two paragraphs is that because your property is disregarded tariff income does not apply and the actual rental income must be taken into account. Although the rules are presented differently this takes us back to the same situation as for IS and your rental income would be taken into account in full as unearned income for UC.

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    Compare the two situations. 

    If you had a second property worth £200,000 with a mortgage of £170,000. The value of the capital would be the equity of £30,000 minus the 10% sale allowance leaving a capital value of £10,000. If this property did not fall to be disregarded tariff income rules would be applied resulting in deemed income of £69.60/month. The actual rental income would be ignored as income but would be treated as an addition to capital. 

    If the same property is disregarded the tariff income is not applied but the rental income is, by my reading, taken into account.

    In reality of course a second property will in most cases have a value over £16,000 thereby excluding a claim for UC if the property is not covered by a disregard.

    ------------------

    My conclusion is that the answer to your question is that the rules regarding rental income from a disregarded property are similar for UC as for IS.

    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
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    I do wonder however whether, if you were likely to be found to have Limited Capability for Work and Work Related Activity, you would get more benefit on UC than on IS - but it will depend on your circumstances (and provided your brother has LCW so that your second property can continue to be disregarded).

    Have you tried a benefits calculator or it could be worth asking an advice agency to do a benefits check for you. 

    You will in any case be required to switch to UC by the end of 2024 if the government meet their timetable.

    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
  • kittybelle
    kittybelle Community member Posts: 17 Listener
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    Calcotti that information and detail is indeed impressive.I will not pretend to fully comprehend everything you have written, but I do get the jist of it thank you. My brother claims ESA and is in the support group, so hopefully when we get migrated over there hopefully won't be any problems. Your knowledge is second to none, that's why I joined this group. Local advice centres were giving me conflicting advice.Sincere thanks for taking the time to look into this for me. 👏🙂
  • kittybelle
    kittybelle Community member Posts: 17 Listener
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    Calcotti,I did get a calculation from two advice centres and both were conflicting advice.I don't claim lcwra I am on incapacity credits.Husband claims carers for me and is in receipt of sdp for himself as he gets standard daily living pip.one lady said we would be better off because we could add the £240 rental income per month onto the monthly calculation.we are afraid to move over until called, incase we lose the TP.I was toying with the idea of claiming carer's for supporting my husband and that may have avoided me going for a wca which I am extremely nervous about, but was told we would be worse of,it's not easy knowing what to do just trying to keep going here and keep the wolf from the door lol.
    Kindest regards
  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
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    My brother claims ESA and is in the support group, so hopefully when we get migrated over there hopefully won't be any problems. 
    That's fine - it means that the property will continue to be disregarded under UC.
    I don't claim lcwra I am on incapacity credits.
    Can you clarify what you mean by 'incapacity credits'. Do you mean that you have had a Work capability Assessment in the past and receive NI credits as a result of having Limited Capability for Work? If so it makes a difference to to a future UC claim whether you were found to have Limited Capability for Work or Limited Capability for Work and Work related Activity.
    Husband claims carers for me and is in receipt of sdp for himself as he gets standard daily living pip...I was toying with the idea of claiming carer's for supporting my husband ..but was told we would be worse of,
    Do not do that, the advice that you would be worse off is correct. If you received Carer's Allowance he would lose the SDP and overall you would be worse off.
    ..we are afraid to move over until called, incase we lose the TP...
    The TP is only relevant if your UC entitlement, without transitional protection, will be less than you currently get.

    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
  • kittybelle
    kittybelle Community member Posts: 17 Listener
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    Hi again,I was claiming incapacity benefit income based as I did not have enough ni contributions paid.when I got married nigh on 20 years ago,as my husband was then in full time work my benefits stopped and I just received credits I had to have a few medicals to get these.In 2013 I received a form to apply for ESA, I rang them and asked why as I wasn't getting any money only credits so the advisor said that's okay and I never heard any more of it until two years ago when I was contacted by incapacity benefits seeking details of when I first claimed etc they have just recently sent a review letter which I returned.i have not had a medical I think since the early 2000s.I suppose I will have to have a WCA as it's been so long.🥺
  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
    edited December 2022
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    See how that develops. It is in your interest to have an up to date decision because if you are treated as having LCWRA and get NI credits on that basis it would mean that when you do claim UC, or have to claim UC, you would be entitled to the LCWRA element of UC from the start of the claim. With that included I think it possible that your joint UC would be higher than your husband's IS (even if the rental income is taken into account).
    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
  • kittybelle
    kittybelle Community member Posts: 17 Listener
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    Calcotti unfortunately they're won't be an up to date decision with regards to lcwra eligibility.They never reply to these recent renewal letters they are not forms.just checking has anything changed.There is no mention of ESA on any letter just incapacity benefit credits. I must be still under the old system.its strange isn't it that since being contacted in 2013 regarding changing over to ESA and me refusing to move over because it was of no monetary benefit they have left me alone so long.i should phone them but don't want to risk triggering a uc form in the post.
  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
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    I can’t edit my earlier long reply but I think there’s a crucial bit of it which I got wrong and I’ve changed my mind and decided that the rent will be ignored.

    I quoted the guidance which says that if tariff income applies then the actual income cannot be taken as income. I then interpreted this to mean that if, as in your case tariff income does not apply, the income is taken into account but that isn’t the same thing.

    What that guidance means is that in a case, where tariff income does not apply, then the rental income could be taken into account – it doesn’t mean that it must be taken into account.

    We therefore have to go back to the rules on what counts as income to be taken into account. Unfortunately for UC the guidance spells out what income is specifically taken into account. It doesn’t state what is ignored (whereas guidance for old benefits was clearer about things that are included).

    Looking at what it is unearned income  takes us back to what counts as unearned income. In my first reply I referred to other taxable income but the rules actually refer to ‘certain income which is taxable’.

    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1061722/admh5.pdf– see paragraph H5002.

    The types of certain income that is taxable to be taken into account is set out in paragraph H5111. The list does not include rental income. There is even an example

    H5112 Where a claimant receives an income which is not defined as such for the purposes of UC then it cannot be taken into account as income. 

    Example: 
    Teresa is in receipt of UC. She rents out a spare bedroom in her house for £60 a week. Because this weekly income from a sub-tenant or boarder is not defined as income for the purposes of UC, it is not taken into account as Teresa’s unearned income. 

    Note 1: It is not relevant whether the rental income is above or below the ‘rent a room’ tax relief limits.

    Obviously this is not the same as your situation but the important point is that the example shows that even if somebody has a lodger paying rent which is taxable it is not counted for UC. Under IS rules the income from a lodger would be taken into account (regardless of whether or not it is taxable)

    Although a tenant in a second property is obviously different to a lodger in your own home the same principle applies. 

    I therefore now think that your rental income will be ignored as income for UC. 

    I realise it’s not very reassuring for you to have me changing my mind – sorry for that.

    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
  • kittybelle
    kittybelle Community member Posts: 17 Listener
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    Please don't apologise, you are very methodical and Keen to get the correct answer, you would need a law degree to decipher all that jargon so well done for sticking with it.Hopefully when the time comes the Decision maker will come to the same conclusion. Thanks for taking an interest. I know these are an unusual set of circumstances.
  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
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    I'm not very good at calculating IS, would you be willing to post how much IS your husband receives.
    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
  • kittybelle
    kittybelle Community member Posts: 17 Listener
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    No problem I will check and get back to you.
  • kittybelle
    kittybelle Community member Posts: 17 Listener
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    £353.10 per 2 weeks plus carers allowance £69.70 weekly and rental income of£240 per month.
  • calcotti
    calcotti Community member Posts: 10,010 Disability Gamechanger
    edited December 2022
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    Income Support - couple allowance £121.05, disability premium £51.60, Enhanced disability premium £25.35, SDP £69.40, carer premium £38.85 = maximum IS £306.25/week. Minus CA £69.70 and rent of £55.38 (£240 x 12/52) = £181.17/week or £362.34/fortnight. For some reason this is slightly different to your actual amount but based on this calculated income the monthly income is equivalent to £1,327.08/month (£306.25 x 52/12)

    If you claimed UC now and assuming you do not have LCWRA then UC would be standard allowance £525.72, carer element £168.81 and SDP protection of £285 making maximum UC of £979.53/month. The CA would be deducted. If the rental income is ignored for UC your monthly income would be £1,219.53/month which is less than existing.

    If you claimed as above and were later found to have LCWRA you would get the LCWRA element £354.28 but the SDP element would be removed and the UC would therefore be £1,048.81 which plus the rent makes monthly income of £1,288.81/month which is still less than existing.

    However if you do have LCWRA and claimed UC then the UC would be standard allowance £525.72, LCWRA element £354.28, carer element £168.81 and SDP protection of £120 making maximum UC of £1,168.81/month. The CA would be deducted. If the rental income is ignored for UC then the monthly income is now £1,408.81/month which is more than existing.

    If I've doe this correctly it isn't worth claiming UC at the moment, even with the rental income being ignored, unless the NI credits you get are for having been found to have LCWRA.

    If you about to have a new WCA it would seem prudent, in my opinion, to wait until the outcome of that WCA before making any decision.

    It would also be sensible, even if you do have LCWRA and do decide to claim UC, to delay any claim until mid April after the 10.1% rise in benefit rates because if you claimed now the increase in the other elements will be taken off the SDP protection.


    Information I post is for England unless otherwise stated. Rules may be different in other parts of UK.
  • kittybelle
    kittybelle Community member Posts: 17 Listener
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    Thank you so much for taking the time to work out those calculations.i will double check in the morning and see where I got my figures wrong,I will update you then if that's ok.Goodnight.
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