Universal Credit and the money of others
Exploring how money from friends and family impacts UC
Universal Credit (UC) is a means-tested benefit. This means that money, whether it be income or capital (savings), can be a crucial factor in how much someone will be paid each month, and whether they will be entitled to the benefit at all.
Gifts from family or friends, money belonging to kids and money for houses — we’ll look at 3 cases and explain whether this is income, capital or ignored altogether.
Case study 1
“My kids have their savings in my bank account. Is UC going to consider that as my capital?”
No, not necessarily.
First we need to go over some legal terms about interest, and understand why they are important.
The Department for Work and Pensions (the DWP, who administer UC) will look at two types of interest someone can have in an asset (in this case money) when they decide what it will do to benefit entitlement.
There is the ‘legal interest’, which is who holds the money, and then the ‘beneficial interest’, which is about who has a right to the money.
For example — a solicitor may be holding some money for you. You haven’t got this ‘legal interest’, because it isn’t in your bank account yet, but (after any costs have been sorted out) you still have a ‘beneficial interest’. It is your money, that you have an interest in, being held for you.
This is a vital distinction to make because capital will only be taken into account if the person claiming benefits has a beneficial interest in it. This is something the DWP clearly acknowledges in paragraph H1070 of their staff guidance on capital and UC, ADM H1.
In this case, it sounds like the person has a legal interest, due to the money being in their bank account, but this does not automatically mean they also have a beneficial interest.
When it’s only their children who have a beneficial interest (a right to the money) then for the purposes of UC it is not their capital. The money is just being held ‘on trust’ for the children. The DWP acknowledges this principle in their guidance, paragraph H1074, quoting the legal case of R(SB 23/85).
We have more recent case law to back this up too. See paragraph 18 of GK v Secretary of State for Work and Pensions (JSA) [2012] UKUT 115 (AAC) and paragraph 21 of SSWP v London Borough Tower Hamlets and CT (IS & HB): [2018] UKUT 25 (AAC). Both confirming that capital held ‘on trust’ (for someone else) does not mean the claimant is the beneficial owner, and that this ownership is what’s relevant for benefits.
The DWP even go so far as to specifically acknowledge that this issue comes up with children in their guidance on capital:
‘Ownership of capital of a child or young person
H1077 Capital owned either legally or beneficially by a dependent child or qualifying young person is not to be included in the capital of the claimant. However, the DM may still need to make enquiries about such capital if it appears to be owned by the claimant but is actually beneficially owned by a child or young person for whom they are responsible.
H1078 Children and young people may not be the legal owners of the capital of which they are the beneficial owners. This is because businesses, such as banks, will not enter into a contract with them. If they are the beneficial owners and not the legal owners their capital will be held on trust by another person.’
(DM means decision maker)
In general, it’s up to the legal owner to prove that they are not also the beneficial owner (MB v Royal Borough of Kensington & Chelsea [2011] UKUT 321 (AAC)). So the legal owner may be expected to provide proof that it’s the children’s money — by providing bank statements and proof of transactions, for example.
The strongest case will be the one where the money has remained untouched. This will add weight to the argument that the trust, holding the money for the kids, is an exclusive and legitimate one.
However, even in cases where the legal owner has dipped into the funds, the case can still be made that it does not change the fact that a trust exists.
In MC v SSWP (IS) [2015] UKUT 600 AAC the benefit claimant had saved up her daughter’s Disability Living Allowance (DLA) award. This money did not impact her own claim because it could be deemed to be held on trust for the child. Issues arose though when she opted to use a substantial amount of it to pay rent arrears.
The judge in the case said that this was an example of an informal trust over money, without any legal formalities. As the payment of rent kept a roof over the daughter’s head, this was in keeping with the purpose of the trust and so acceptable.
Ultimately the appeal went in her favour, deciding the money was the daughter’s.
Tactics
To save any misunderstandings down the line, it’ll be best to tell the DWP about the money when claiming but clearly explain that it’s the children’s money and provide any evidence of that.
Direct the UC work coach to the guidance and law we have mentioned here. It will explain why beneficial interest is important and why it’s relevant to this case.
If the DWP doesn’t accept this argument, they could make a decision that the person isn’t entitled to UC due to having too much capital. This can be challenged. To begin with this would be by asking for a ‘mandatory reconsideration’ of their decision, on the same basis as above.
If it goes to an appeal hearing, it is strongly recommended that the legal owner attend if possible, either remotely or face-to-face. The tribunal may want to ask questions about the nature of the trust which could be key to a win.
Note: It’s always important to check where the money came from. If someone gives away their savings to their kids then it could be seen that they did it to claim benefits. Advisers looking for more information on this issue may find my colleague Fiona’s deprivation of capital article of interest
Case study 2
“My parents have given me £20,000 for a deposit. The money is in my account but I haven’t put it towards a home yet — can I still claim UC while I have the money?”
Yes, this person could claim UC, but it will depend on exactly what the arrangement is.
We talked in the last case about trusts — the act of ‘holding’ an asset for another person.
Now, there is a particular kind of trust that could be at play here, known as a ‘Quistclose trust’.
In essence a Quistclose trust means that person A gives property (normally money) to person B on the condition that it can only be used for one purpose. So, until it is used for that purpose, person A still owns it. As a result it is not included in Person B’s capital calculations while it waits to be used for that purpose.
Again, we have all that case law mentioned in case study 1 supporting this key concept — holding an asset on trust does not create a beneficial interest.
The crucial thing here would have to be the exclusive nature of the trust. It has to be held for a clear purpose and be given back if it cannot fulfil that purpose. If person B could not use the money for a deposit, then it would have to be repaid to person A and not used for anything else.
You can see a good summary of the requirements of a Quistclose trust in paragraphs 41 & 42 of VMcC v SSWP (IS) [2018] UKUT 63 (AAC).
Ideally there would be something in writing that sets all this out and includes the terms of the trust. However, it’s not fatal if there isn’t because there is no legal requirement that the trust be in writing.
As from paragraph 38 of DL v Southampton City Council (CTB) [2010] UKUT 453 (AAC):
“[..] clearly the absence of any written declaration of trust is one consideration. However, although it may be evidentially very helpful, there is no legal requirement for a declaration of a trust over monies to be committed to writing.
Indeed, there are no technical formalities at all and it may be doubtful how realistic it is to expect a written declaration of trust in the context of a family relationship such as this.”
Trusts can be formalised, and you will see details of what the decision maker looks for in their staff guidance on capital (ADM H1, paragraphs H1090 and H1091):
‘How to work out if a person is the beneficial owner of capital
The person is the legal owner
H1090 If people are the legal owners of capital, assume that they are the beneficial owners unless
1. there is written evidence such as a Deed of Trust which says who has a beneficial interest in the capital or
2. the legal owners say they have
2.1 no beneficial interest or
2.2 only a share in the beneficial interest.
Note: It is the responsibility of the legal owners of capital to establish that they are not the beneficial owners.
Written evidence
H1091 If there is written evidence naming who has a beneficial interest in the capital the people named in the evidence are the beneficial owners.’
So, whilst it isn’t mandatory to have details of a trust in writing, it can be very useful evidence in these cases.
Tactics
Explaining what the money’s for and where it came from, with as much evidence as possible, is the best starting point.
It would be worthwhile to explicitly state that this is a ‘Quistclose trust’. Also, to refer to the case law and guidance about beneficial interests and trusts, to show the DWP that this argument is legitimate.
If there is evidence of the trust in writing, then this should be provided.
If there is no written evidence of the trust itself, as an alternative the parents could provide a statement confirming the terms. In this scenario it may also be helpful to refer the DWP to the case above that stresses that there is no need for it to be in writing (and that it is common not to have such a thing in cases within families).
In all cases it needs to be made very clear to the DWP that the money will go back if it’s not used for the express purpose. If there is no need for the money to be returned then there is no Quistclose protection here.
If the DWP rejects the argument, this will likely be shown in a decision saying the person is not entitled to UC due to capital. This can be challenged by ‘mandatory reconsideration’. The mandatory reconsideration request needs to include the grounds as above.
If this case ends up going to a tribunal for an appeal then attendance could be very useful. The parents may also want to offer to attend, if possible, in case the tribunal wants to ask them questions to help assess the trust’s legitimacy.
Note: As in the first case, it’s important to look at the origins of the money that is changing hands. If the parents are on benefits, giving away this money to their child could be deprivation. It will all depend on what their intentions are.
Case study 3
“Every month my relative sends me £100 to help towards bills and food. Will Universal Credit take this into account as income?”
No. As long as the payments are truly voluntary gifts (not taxable, in return for work or spousal maintenance — for example) then they will not be classed as income and Universal Credit cannot take them into account.
The only time these payments become a problem is if they build up and take someone over the capital levels for UC. Then it’s not about where the money came from, but instead about how much savings you have.
Tactics
Of all the cases we’ve covered here, this can be the hardest to evidence because it is an absence of a rule, rather than a rule itself.
Basically, regulation 66 of the Universal Credit regulations 2013 lists all the forms of unearned income that get taken into account for UC. Voluntary payments, like those from friends or family, are not on this list, and so cannot be considered.
If the DWP raises any queries about the money, it’s most important to explain that they are voluntary in nature. It could also help to direct them to regulation 66 and explain that, because these payments are not in there, they are not relevant.
Should the DWP treat the payments as income then it could be challenged via a ‘mandatory reconsideration’, making the same point about regulation 66 and that they are voluntarily made. A statement from the paying relative confirming this, may also be of use.
Conclusion
Understanding the rules on capital and income, especially for trusts, can be incredibly tough. However, it’s important to get to grips with some of the basics to understand their significance for Universal Credit and help move a case forward.
Hopefully this article has helped you understand the difference between legal and beneficial interest, what a trust is and how to challenge decisions in this area.
Citizens Advice advisers can contact us on our consultancy service for further support if needed.
Alice Buchanan works as a Welfare Benefit expert 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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