Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Case No.  CIS/1213/2011

ADMINISTRATIVE APPEALS CHAMBER

Before Upper Tribunal Judge Rowland

Decision:  I allow the claimant’s appeal.  I set aside the decision of the First-tier Tribunal dated 13 January 2011 and I substitute my own decision that the claimant’s entitlement to income support on her claim made on 27 April 2010 is to be calculated by the Secretary of State on the basis that she had notional capital as a result of having deprived herself of £35,0001 from 31 March 2008 for the purpose of securing entitlement to income support.  I leave the Secretary of State to make a fresh decision in the light of his calculation.

REASONS FOR DECISION

1. This is an appeal, brought by the claimant with my permission, against a decision of the First-tier Tribunal dated 13 January 2011 dismissing her appeal against a decision of the Secretary of State to the effect that the claimant had capital in excess of £16,000 and so was not entitled to income support.

2. Income support is an “income-related benefit” (see section 123(1) of the Social Security Contributions and Benefits Act 1992) but capital is also relevant because a person who has capital in excess of £16,000 is not entitled to income support (see section 134(1) of the 1992 Act and regulation 45 of the Income Support (General) Regulations 1987 (SI 1987/1967)) and capital of between £6,000 and £16,000 is treated as producing income (see regulation 53).  Where a person deprives himself or herself of capital for the purpose of securing entitlement to income support, he or she is treated as still possessing the capital (see regulation 51(1)), such “notional capital” being treated as diminished by the amount of additional benefit the claimant would have been entitled to had he or she not been treated as having the notional capital (see regulation 51A).

3. In reaching its decision, the First-tier Tribunal relied on an earlier decision of the First-tier Tribunal, dated 12 November 2009, in respect of which there is a statement of reasons dated 3 December 2009.  That tribunal found as a fact that, following receipt of £41,425 on 12 March 2008 upon settlement of claim for a lump sum in matrimonial proceedings, the claimant had paid £20,000 to her father on 28 March 2008 and £15,001 to her mother on 31 March 2008.  She had already had some savings but had also withdrawn £4,420 in cash between 15 March 2008 and 28 March 2008.  It was not satisfied by the claimant’s explanations for those payments, or for other claimed expenditure except £6,073 in respect of a legal aid charge, and it found that £35,352 remained actual capital in her hands.

4. On 27 April 2010, the claimant made a new claim for income support and the Secretary of State refused it on the basis that the claimant still had the £35,325, which was well in excess of the £16,000 statutory limit for capital.  It was her appeal against that decision that the First-tier Tribunal heard on 13 January 2011 and dismissed on the ground that nothing had changed since the previous tribunal’s decision, in respect of which there had been no application for permission to appeal.

5. The claimant sought permission to appeal against the decision dated 13 January 2011 on the ground that the First-tier Tribunal had erred in not considering whether the claimant had deprived herself of capital and had failed to consider properly whether she still had the same capital in 2010 as she had had in 2008.  When the application was renewed before the Upper Tribunal, Judge Powell sought a submission from the Secretary of State, who initially did not support the application.  However, I granted permission and, in the light of my observations, the Secretary of State has changed his position and accepts that it is arguable that the claimant should be treated as having had less capital than the First-tier Tribunal found.

6. I do not doubt that, generally, although a decision of the First-tier Tribunal does not bind another such tribunal, a second tribunal is entitled to adopt the reasoning of the first tribunal very briefly if satisfied that there has been no material change of circumstances and no new argument has been advanced, provided, of course, that the first tribunal’s decision was not flawed.  That proviso is important.  The fact that the claimant has not appealed against the first tribunal’s decision does not entitle the second tribunal to adopt any errors in the first tribunal’s reasoning.  Moreover, the mere passage of time may amount to a change of circumstances making it unreasonable to treat a person with no income as having the same amount of capital as he or she had before.

7. The first tribunal correctly stated that a claimant “must satisfactorily account for the way the capital has been disposed of and if she cannot then it is open for it to be determined that the money is still part of her actual capital to be valued under the Regulations”.  It then went on to refer to a number of respects in which it did not regard the claimant’s account of her financial transactions as reasonable.  The claimant does not now seek to challenge those findings.  However, it does not follow that those matters cast any doubt on “the way capital has been disposed of”, at least in relation to the £35,001 paid to the claimant’s parents. 

8. In truth, there are at least five different possibilities that must be considered in respect of any capital sum.  The first is that the claimant has it as actual capital in his or her hands.  In such a case the money is taken into account for income support purposes as actual capital.  The second, which does not arise in this case, is where the claimant has the money but it really belongs to someone else because, for instance, the claimant is a trustee. In such a case, the money is not taken into account for income support purposes.  The third is where the claimant has transferred money to someone else for a purpose other than securing entitlement to income support by, for instance, paying a debt that is due at the time.  In such a case, the money is again not taken into account for income support purposes.  The fourth is where the claimant has transferred money to someone else for the purpose of securing entitlement to income support.  In such a case, the money is taken into account for income support purposes as notional capital.  The fifth is where the claimant has transferred money to someone else but really still owns it because, for instance, it is held in trust for him.  In such a case, the money is taken into account for income support purposes as actual capital.

9. In paragraph 18 of R(SB) 38/85 to which the Secretary of State referred in his first submission and which the first tribunal seems to have had in mind, the Commissioner was concerned with the question whether the claimant in that case had got rid of the £18,700 in question at all, there being no documentary evidence as to where it had gone.  In the present case, that is not an issue in relation to the sums amounting to £35,001 transferred to the claimant’s parents.  On the face of it, the claimant had deprived herself of those sums.  To the extent that the action was unreasonable, it could properly be said that she had deprived herself of the sums for the purpose of securing entitlement to income support so that she is to be taken to have notional capital, but it does not necessarily follow from any unreasonableness in the transactions that she actually retained a beneficial interest in the sums so that her parents had no right to dispose of the sums without her permission.  There is no evidence of a trust in favour of the claimant and her own evidence was completely inconsistent with there being any such trust.  Moreover, even if that was the position as regards that sum, the second tribunal had to consider how realistic it was that the claimant still had a beneficial interest in that sum two years later.  Even if the sums in the accounts had not been used, there would be a question whether, if the claimant’s parents supported her, they did so on the understanding that they would be reimbursed out of those sums.  The effect would be similar to applying the statutory diminishing capital rule

10. I do not consider that the first tribunal gave adequate reasons, or indeed any reasons, for finding that the claimant had retained the £35,001 as actual capital after the transfers to her parents and neither did the second tribunal.  In some cases, unreliability in a claimant’s account will suggest that the claimant still possesses capital as actual capital.  In other cases, it will suggest that, although the claimant has disposed of the capital, he or she has done so for the purpose of securing entitlement to income support so that he or she is treated as possessing notional capital.  No doubt the claimant in this case had all the money as actual capital as at 12 March 2008, but that was not obviously the position either at 23 March 2009, the date of the decision of the Secretary of State challenged before the first tribunal, or at 17 May 2010, the date of the decision of the Secretary of State on the new claim.

11 In fairness to the first tribunal, I ought to point out that from one point of view it did not need to be very precise in its findings because, on its primary findings of fact, the claimant’s capital was certainly well over £16,000.  However, it is necessary to distinguish between actual capital and notional capital for the purpose of deciding whether to apply the statutory diminishing capital rule.  Moreover, even where a person is found to have undocumented actual capital, it may be necessary to assume that it is being spent on living costs if the claimant has had no other visible means of support.  Even if immediate entitlement to income support was still not an issue on the second tribunal’s primary findings, it was necessary to express its decision in the proper way in order to set things up for the future.  I am satisfied that its decision was erroneous in point of law.

12. There remain a number of unanswered questions about this case.  As the Secretary of State pointed out to the first tribunal, the claimant has never provided documentary evidence that the agreement for a lump sum in her matrimonial proceedings was for only £41,425 and it is also unclear what happened to the money withdrawn in cash or exactly how payment to the Legal Services Commission in respect of the legal aid charge came to be made by a banker’s draft dated 29 May 2008 when the claimant had only just over £2,000 in her bank account from 31 March 2008.  However, neither party wishes the facts to be gone into in detail again and both are content for the money paid to the claimant’s parents to be treated as notional capital.  It seems to me that any actual capital the claimant had in 2008 ceased to be of significance after 29 May 2008, when the payment was made to the Legal Services Commission, and that she should not now be regarded as having any actual capital as a result of the receipt of the £41,425 other than is revealed in her statements disclosed in connection with the claim made on 27 April 2010.

13. In those circumstances, I can substitute my own decision, adopting the first tribunal’s scepticism about the facts but not its legal analysis.  I am satisfied that the claimant transferred a total of £35,001 to her parents by 31 March 2008 and thus deprived herself of that sum for the purpose of securing entitlement to income support.  She is therefore to be treated as having notional capital from that date.  I leave the Secretary of State to apply the diminishing capital rule in regulation 51A and calculate how much notional capital the claimant is to be treated as having had at the date of the new claim on 27 April 2010 and at the date of the Secretary of State’s decision on 17 May 2010.  Even if, as I suspect is the case, the claimant was still not entitled to income support at that time, the calculation will give some indication as to when she has qualified since or will qualify in the future.

Mark Rowland

20 April 2012