Jointly owned property

This article considers how jointly owned property is valued for benefit purposes

When means-tested benefits are calculated, an assessment is made of the claimant’s capital assets, including any property they own. The capital value of some types of property are disregarded for benefit purposes, e.g. a property which the client lives in as their home; a property which the client is taking ‘reasonable steps’ to dispose of, or a property which is occupied by the client’s former partner who is a lone parent (this is not an exhaustive list — see for example Schedule 10 UC Regs 2013, and equivalent for other legacy means-tested benefits).

If the property cannot be wholly disregarded, then an assessment needs to be carried out in order to decide if/how it’s value will affect entitlement to benefit. This article looks at how a valuation should be considered when a client is joint owner of a property, and the factors which should be taken into account when valuing it for benefit purposes. It refers to UC regulations, but equivalents exist in relation to other legacy means-tested benefits.

How is capital treated?

The starting point is that the capital value of an asset is the current ‘market or surrender value’ (Reg 49 UC Regs 2013). A deduction of 10% is then made from that figure if there would be expenses in connection with any sale. Any ‘encumbrances’ secured on the property (e.g. a mortgage) are also deducted. The remaining figure is the amount used to calculate benefit entitlement.

However, property which is outside the UK is valued at the market price which would be obtained in that country, assuming there is nothing in that country which prevents the transfer of the value of the property to the UK. If there is, then the market value is the amount which a willing buyer in the UK would pay. In either case, the cost of converting the asset from another currency into sterling is to be deducted from the value.

‘Market’ value?

Caselaw has held that the market value of a property is the price that would be paid by a willing buyer to a willing seller (R(SB)57/83). DWP guidance to decision-makers states that this value can be determined by the decision-maker themselves, or from evidence given by the claimant or from an expert valuer (H1611). However, in R(SB)6/84, the Judge held that an estate agent’s figure for a quick sale (provided by the client) gave a more accurate figure for the market value than a District Valuer’s figure for sale within 3 months. Similarly, the market value of an asset may be very low if there is some form of legal charge or other restriction on the property and this must be reflected in the valuation, e.g. in CH/1837/11, the client owned two properties — one was rented out to tenants and the other (on a development site) had been given to the client by her parents-in-law on the understanding that the client would build a house on it and then give the parents-in-law £100k from the proceeds once the property was sold. Both properties were heavily mortgaged together with 2 separate banks and the client was undergoing a divorce. The Judge held that given all these the facts, i.e. the property at the development site remained unfinished; the husband was unwilling to sell his share; and litigation costs could be substantial and possibly linked with ancillary relief proceedings in the divorce, nobody would be willing to purchase the client’s interests in either property for more than a ‘nominal’ amount.

Joint ownership

If a property is jointly owned, then each owner is deemed to have an equal share of the whole of the value of that asset (Reg 47 UC Regs 2013), unless the property is owned under a ‘tenancy in common’ (i.e. where each owner has a separately identified share) — see R(IS) 4/03 (‘Hourigan’). DWP guidance to decision-makers (H1244-H1259) also gives a good explanation of the differences between joint tenants and tenants in common.

However, the valuation of a jointly owned asset cannot merely be the value of the whole asset divided by the numbers of owners, as the value must be the price a willing buyer would pay for the client’s share of that asset — see (R(IS)26/95 (‘Palfrey’). For example, if the house is occupied by the other joint owner who is unwilling to sell their share, then it is unlikely that a willing buyer would pay 50% of the value of the whole house, given the circumstances. Consideration would need to be given as to whether any order for sale would be made by a court in such a situation, and the effect that such a requirement would have (in order for buyer to realise their share of the property) on the market value of the client’s share. The importance of this can be seen by contrasting R(IS)3/96 in which the Judge held that an order for sale was unlikely and so the value of the client’s share was below the limit for benefit dis-entitlement, and R(IS)1/01 where the Judge held that the other joint owner would be unlikely to resist an order for sale, and so the value of the client’s share of the property would only be reduced by an ‘insubstantial’ amount.

In R(JSA)1/02, the property was occupied by the client’s ex-wife and their daughter who had learning disabilities. The DWP valuation estimated that the value of the whole property was £30,000 and the client’s share £9,200. No evidence was before the tribunal as to the valuer’s qualifications, nor were any reasons supplied to justify the figure of £9,200. The Judge held that this valuation of the client’s share was ‘unsustainable’, given the fact that it was unlikely a court would order any sale in the circumstances, and that the valuer had not inspected the property nor given any factual basis for her conclusions. The valuation evidence was therefore ‘worthless’ and the client was deemed not to have capital exceeding the benefit limits. Referring to earlier caselaw in CIS/191/1994 the Judge held:

“It therefore appears to me that the tribunal erred in law in coming to its decision, and its decision must be set aside. In coming to this conclusion, I have found helpful the observations of the Commissioner in CIS/191/1994. I would emphasise, however, that the Commissioner does not suggest in that case that there is any rule of law that where a wife and children are living in a matrimonial home, the half share of a claimant in that home is likely to be reduced to nil. Everything must depend on the facts of the case, and on the evidence before the tribunal. The Commissioner in CIS/191/1994 pointed out that where the home is of modest value, and none of that value could be realised by a claimant or any person acquiring his interest for a lengthy, and possibly unascertainable period, it is unlikely that anybody would be prepared to pay very much for the interest, and it may have little or no value.”

Such an approach was approved in R(IS)5/07.

Tactics

In many cases, the DWP valuation will merely divide the whole value of the property between the number of joint owners, but as the above case law shows, this would not necessarily result in an accurate ‘market value’ of the client’s share in isolation. Where there are other joint owners who are living in the property or who are unwilling to sell their share, then those factors may reduce the amount that a willing buyer would pay. But much will depend on the individual circumstances of each case, including whether court action could force a sale or whether there are other factors which could potentially affect the valuation of the client’s share.

It may be helpful in cases of jointly owned property, to check that any DWP valuation has followed DWP guidance to take the following factors into account (H1638):

• that the claimant is assumed to be a willing seller
• whether the other owners would be willing and able to buy the share
• whether the other owners would agree to the sale of the asset as a whole
• in a case where the other owners would not buy the share or agree to a sale of the asset as a whole:

*whether on the facts of the claimant’s particular case the courts would order the sale of the property as a whole or the partition of the property

* the length of time a purchaser may have to wait before obtaining possession

* the legal costs a buyer may have to pay if an application to the courts for an order for sale and/or partition was pursued (this includes both the buyer and the other parties costs)

• the rights of occupation of the other owners
• whether any of the other owners are occupying the property and whether they would be willing to vacate the property
• any rights of occupation possessed by any occupants who are not owners (e.g. tenants)
• any encumbrances secured on the asset being valued
• any legal protection available to a potential purchaser
• any risk that the legal owners may:

*sell the property and keep the proceeds for themselves

*encumber the property with secured debts

*lease the property

• whether there are planning or other restrictions on the property
• whether there is a current market for the claimant’s share of the property or whether one might develop in the future

If a decision is made that the valuation of the client’s share exceeds/reduces benefit entitlement, then clients should consider submitting a mandatory reconsideration request and then appealing if necessary.

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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