Diminishing notional capital

If a client has deprived themselves of capital for the purposes of obtaining benefit, then their benefit claims can assume that the client still has an amount of ‘notional capital’ (see ‘Deprivation of capital’). This article explains how the amount of that notional capital can be reduced over time, allowing a client to become entitled to more benefit (or become entitled to benefit again).

If a claimant falls foul of the ‘deprivation’ rules, they will be deemed to have an amount of ‘notional’ capital which may either reduce the amount of benefit they receive, or stop entitlement altogether. (Any actual capital they have will be added to any notional capital amount when assessing benefit). However, such a ‘notional’ amount of capital cannot be taken into account indefinitely, so special rules apply in means-tested benefits, which assume that the amount of notional capital reduces over time — this may allow the client to become entitled to benefit again once the notional capital figure has reduced sufficiently.

For UC, entitlement ceases altogether once the claimant’s capital exceeds £16,000. Any capital between £6,000 and £16,000 results in the client’s UC being reduced by fixed amount to take account of ‘assumed income’ from that capital — you can see a helpful breakdown of how to calculate assumed income from capital for UC in Chapter H1, Appendix 1 of the DWP’s guidance to decision-makers. (Note that for UC, this is referred to as ‘assumed yield’ from capital).

For UC purposes¹, where a client is deemed to have notional capital which exceeds £16,000 (so their entitlement ends), then for each subsequent month, the amount of that notional capital is deemed to reduce by the amount of UC they would have been entitled to, had the notional capital figure not been used.

George is a carer receiving UC of £592 per month. He receives an inheritance of £17,000, but spends all the money on a new car. The DWP decide he deliberately deprived himself of the capital in order to become entitled to UC, so his UC claim ends as he has notional capital of £17,000. However, he can’t be ‘deemed’ to have this notional capital forever, so in the following month, the notional capital figure (£17,000) is reduced by the amount of UC he would otherwise have had (£592). So the notional capital figure is then £16,408 so he still won’t qualify for UC. But at the end of the next month, that notional capital figure has reduced by a further £592 to £15,816. If George reclaims UC at that point, he can qualify, but he’ll be assumed to have income of £174 from the notional capital, so his UC will only be £418.

If a client is fixed with a notional capital figure of £6,000 or more but less than £16,000 (so their entitlement to UC continues but with assumed income from that notional capital taken into account), then for each subsequent assessment period, the amount of that notional capital is deemed to reduce by the amount of assumed income.

In the example of George above, in his 2nd assessment period, the notional capital figure of £15,816 is deemed to reduce by £174 (i.e. the amount of assumed income in the previous assessment period), so the new notional capital figure reduces to £15,642.The amount of assumed income from that capital also reduces to £169.65, so his UC will then increase to £422.35.

Ash is a carer receiving UC of £592 per month. She receives an inheritance of £10,000, but gives all the money as a gift to her children. The DWP decide she deliberately deprived herself of the capital in order to become entitled to UC, so she is deemed to have notional capital of £10,000. She is assumed to have income of £69.60 from that capital so her UC claim is reduced to £522.40. However, in each of the following assessment periods, the notional capital figure is reduced by the amount of assumed income taken into account. So from the 5th assessment period, the notional capital figure will have reduced enough (to £9721.60) that the assumed income also then reduces (to £65.25). So her UC would increase to £526.75 and so on, until the notional capital figure dropped below £6,000, at which point there would no longer be any assumed income to take into account.

For PC and HB for those over pension age², similar rules apply to reduce the amount of notional capital over time, although this is done on a weekly and not monthly basis. You can see a helpful breakdown of how to calculate assumed income from capital for pensioners in Chapter 84, Appendix 1 of the DWP’s guidance to decision-makers. (Note that for pensioners, this is referred to as ‘deemed income’ from capital). However, if the notional capital figure takes the client out of entitlement altogether, then there are a couple of important differences:

• For PC, the amount of notional capital is deemed to reduce by not only the amount of PC which would otherwise have been payable, but also by the amount of HB which would have been payable as well (and vice versa for HB).
• The amount of notional capital can only be reduced if the client re-claims benefit after at least 26 weeks and the new amount of notional capital is then fixed for a further 26 week period. So careful consideration may need to be given to the optimum time for reclaiming — clients could try asking DWP for a forecast of when is the best time to make a new claim.

For legacy benefits³, there are also similar rules to reduce the amount of notional capital over time, but in cases where a legacy benefit has ended altogether (due to notional capital exceeding £16,000), it is not normally possible to re-claim legacy benefits after the relevant period of time, and UC would be the only option. Note that CIS/2540/2004 decided that a notional capital decision is only binding in relation to the claim in which that decision was made, so a claim for UC should be made straight away, as the notional capital rules would then need to be considered afresh.

Fiona Seymour works in the Expert Advice Team at Citizens Advice.

The information in this article is correct as of the date of publication.

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Footnotes

(1) Reg 50(3) UC Regs 2013

(2) Reg 22 SPC Regs 2002; Reg 48 HB (SPC) Regs 2006

(3) Reg 51A IS (Gen) Regs 1987; Reg 114 JSA Regs 1996; Reg 116 ESA Regs 2008; Reg 50 HB Regs 2006