SECTION 6 - CAPITAL

What is capital?

6.001 A resident's resources are either capital or income. It may not always be obvious whether a payment should be treated as capital or income, but generally, a payment of capital is one which is:

a) not in respect of a specified period; and

b) not intended to form part of a series of payments.

Types of capital

6.002 Examples of capital are shown in the following list. The list is intended as a guide and is not exhaustive.

· Buildings

· Land

· National Savings Certificates and Ulster Savings Certificates

· Premium Bonds

· Stocks and shares

· Capital held by the Court of Protection or a Receiver appointed by that Court

· Any savings held in:

· building society accounts

· bank current accounts, deposit accounts or special investment accounts. This includes money held in the National Savings Bank, Girobank and Trustees Savings Bank

· SAYE schemes

· Unit Trusts

· Co-operative share accounts

· cash

· trust funds (see Section 10)

Effect of capital

Capital limits

6.003 A resident with more than £8,000 in capital is liable to pay the standard charge for the accommodation, in a local authority home, or the full amount of the contracted fee if in an independent sector home. If a resident has more than £8,000 there is no need to assess his ability to pay.

Reg 20

6.004 Capital below £3,000 is fully disregarded.

6.005 Capital over £3,000 is taken into account in full unless the regulations specify otherwise (See 6.019 onwards).

Tariff income

6.006 Where a resident has £8,000 or less but more than £3,000, assess the resident's ability to pay in the normal way and take into account, as weekly income £1 for every complete £250 or part of £250 over £3,000. This is called "tariff income".

Reg 28

A tariff income table is set out at Annex B.

Examples

1. The resident has £3,630 capital. £3,000 is disregarded and tariff income of £3 is taken into account as income.

2. A resident has £3,000.50 capital. 3,000 is disregarded and tariff income of £1 is taken into account as income.

NB. Tariff income is meant to represent an amount that a resident with capital over a certain limit should be able to contribute towards his accommodation costs, not the interest earning capacity of that capital.

Ownership of capital

Does the resident own the capital?

6.007 A capital asset normally belongs to the person in whose name it is held. The following paragraphs provide guidance on how to establish ownership where there is a dispute.

Ownership disputed

6.008 Where ownership is disputed, ask for written evidence to prove ownership. Where a resident is said to be holding capital for another person, obtain evidence of the arrangement and the origin of the capital, and evidence to show the intentions for its future use and for its return to the rightful owner.

Examples

1. A resident has £10,000 in a building society account in his own name. He says that £3,000 is set aside for his grandson's education. However, there is no deed of trust or other legal arrangement which would prevent the resident using the whole amount for his own purposes. The resident is treated as the owner of the whole amount.

2. A resident has £4,000 in a bank account in his own name, and shares valued at £4,500. He provides evidence to show that the shares were purchased on behalf of his son, who is abroad, and that they will be transferred to his son when he returns to Britain. Although the resident is the legal owner, he is holding the shares in trust for his son, who is the beneficial owner. The £4,000 is to be taken into account as the resident's capital.

Jointly owned capital

6.009 Where a resident jointly owns capital, unless it is an interest in land (see Section 7), with someone else, divide the total value equally between the joint owners, and treat the resident as owning an equal share. This method of treatment avoids administrative difficulties. Once the resident is in sole possession of his actual share, treat him as owning that actual amount.

Reg 27(1)

Example

1. A resident and her daughter have £9,000 in a joint building society account. The resident contributed £3,500 and the resident's daughter, £5,500. Treat the resident as owning £4,500.

The joint account is then closed and the resident and her daughter open separate accounts. The resident has £3,500 in her account. Treat her as owning £3,500.

Treatment of capital

Valuation

6.010 The value of a capital asset other than National Savings Certificates (see 6.017) is the current market or surrender value, whichever is higher, less:-

a) 10% of that value if there would be any expenses involved in selling the asset; and

Reg 23(1)(a)

b) any outstanding debts secured on the asset, eg a mortgage.

Reg 23(1)(b)

6.011 A capital asset may have a current market value (eg stocks and shares) or a surrender value (eg premium bonds). The current market value will be the price a willing buyer would pay a willing seller. The way the market value is obtained will depend on the type of asset held, eg the values of stocks and shares or unit trusts which are quoted in newspapers.

6.012 If the resident and the assessing officer both agree that, after deducting the amounts in paragraph 6.010 (a) and (b) (where appropriate), the total value of the resident's capital will be:

a) more than £8,000; or

b) £3,000 or less

it is not necessary to obtain a precise valuation. If there is any dispute, obtain a precise valuation.

6.013 In the case of land, buildings or a house, where it is necessary to obtain a precise valuation because of a dispute, a professional valuer should be asked to provide a current market valuation. (See Section 7 for the treatment of property).

Expenses of sale

6.014 The expenses of sale (10%) should be allowed only where there will be actual expenses. The expenses must be connected with the actual sale, and not simply the realisation of an asset, eg the cost of fares to withdraw money from a bank are not expenses of sale.

6.015 The deduction is always 10%, even if the actual expenses are more or less than 10%.

Debt secured on asset

6.016 "Secured on" means a legal charge or mortgage must be made on the actual capital asset.

Example

A resident owns a house and garden (his home), plus an extra piece of land which, although attached to the garden, is not part of it. It has been decided to disregard the value of the resident's former home, but to take into account the value of the extra land because it does not form part of the resident's "home" and could be sold separately. The resident has a mortgage secured on the whole of the property. The value of the land to be taken into account is the market value of that piece of land, less 10% of that value for expenses of sale and the whole of the mortgage secured on the home and the extra land.

National Savings Certificates

6.017 The value of National Savings Certificates is:

a) if sale of the issue ceased before the first day of the July immediately before the resident entered residential care, the price they would have realised on that 1st July if they had been purchased on the last day of the issue; and

b) in any other case, the purchase price.

Reg 23(2)

Annex C is a table of the value of each issue.

Disregards on capital

6.018 Different types of capital will be disregarded for different periods as covered in paragraphs 6.019 to 6.035.

Capital held abroad

6.019 If capital is held in a country outside the UK (ie England, Scotland, Wales, Northern Ireland) the amount to be taken into account in the assessment of the resident's ability to pay will depend on the conditions for transfer to the UK.

Reg 24

Transfer of capital to UK not prohibited

6.020 Where capital is held abroad and all of it can be transferred to the UK its value in the other country should be obtained and taken into account less any appropriate deductions under 6.010.

Sources of valuation

6.021 To establish the value of capital in a country outside the UK, examples of the source of information are

· a bank of the country concerned, including branches in the UK

· a solicitor

· an accountant

· an estate agent (or similar person) in the country concerned

· a stockbroker

6.022 Examples of the information required in the valuation are

· details of the asset

· names of the beneficial owners

· precise value of the asset (if known) but otherwise

· an estimated value

or · if the asset is for sale, the sale price

Transfer to the UK prohibited

6.023 Where the resident represents that the value of any capital which he holds in a country outside the UK cannot be wholly transferred to the UK because of some prohibition in that country (eg currency restrictions) the local authority should require evidence confirming this fact. Acceptable evidence of the prohibition on transfer of value to the UK would include documents/letters from a bank either in this country or abroad, or from a Government official or solicitor.

Evidence required of value

6.024 If the evidence shows that some restriction prohibits the transfer of the value of the resident's assets to the UK, the local authority should seek the following evidence:

· details of the asset

· its value in the country in which it is held

· whether any money is available directly from the asset and, if so, the amount and date it would become payable

· whether the asset is for sale and, if so, the progress and prospects of such a sale

· the nature and terms of the restriction being imposed which prevents the transfer of all the capital to the UK (for example whether some capital can be transferred immediately and the remainder subsequently at intervals).

Action on receipt of evidence

6.025

1. If the transfer or the capital is prohibited, the local authority should take into account the value that a willing buyer would pay in the UK for the assets. This may possibly be less than the market or surrender value in the foreign country.

2. If restrictions do not exist, the capital should be valued as in 6.019 to 6.022.

Capital not immediately realisable

6.026 Capital which is not immediately realisable (eg National Savings Bank investment accounts which require one month's notice or Premium Bonds which may take several weeks to realise) should be taken into account in the normal way at its face value.

Disregarded indefinitely

6.027 The capital assets listed below are disregarded indefinitely:

· property in specified circumstances (see Section 7)

· surrender value of any:

· life insurance policy Schedule 4, para 13

· annuity Schedule 4, para 9

· payments of training bonus up to £200 Schedule 4, para 17

· payments in kind from a charity Schedule 4, para 17

· any personal possession such as painting or antiques unless they were purchased with the intention of reducing capital for the purpose of reducing the local authority charge (see para 6.065)

Schedule 4 para 8

· any capital which is to be treated as income or student loans (see 6.035 to 6.037 and 12.012 to 12.017).

Schedule 4 para 14

· any payment made by or derived from:

· the Macfarlane Trust

· the Macfarlane (Special Payments) Trust

· the Macfarlane (Special Payment) (No 2) Trust

· the Fund (payments to haemophiliacs infected with HIV)

· the Independent Living Fund (or its successor body)

Schedule 4 para 15

· the value of funds held in trust which derive from a payment for personal injury to the resident (eg vaccine damage, criminal injuries compensation), and the right to receive payments from those funds

Schedule 4 para 10

· the value of a right to receive:

· income under an annuity Schedule 4 para 9

· instalments under an agreement to repay a capital sum

Schedule 4 para 13

· payment under a trust where the funds derive from a personal injury Schedule 4 para 10

· income under a life interest or a liferent

Schedule 4 para 11

· income (including earnings) payable in a country outside the UK which cannot be transferred to the UK

Schedule 4 para 12

· an occupational pension Schedule 4 para 15

· any rent Schedule 4 para 15

· any Social Fund payment Schedule 4 para 13

· refund of tax on interest on a loan which was obtained to acquire an interest in a home or for repairs or improvements to the home Schedule 4 para 13

· any capital resource which the resident has no rights to as yet, but which will come into his possession at a later date, eg on reaching a certain age (reversionary interest)

Schedule 4 para 4

· the amount of any bank charges or commission paid to convert capital from foreign currency to sterling

Schedule 4 para 15

· payments from the Department of Social Security to compensate for the loss of entitlements to Housing Benefits or Housing Benefit Supplement

Schedule 4 para 17

· payments to jurors or witnesses for court attendance (but not compensation for loss of earnings or benefit)

Schedule 4 para 17

· community charge rebate/council tax rebate

Schedule 4 para 17

Disregarded for 26 weeks or longer

6.028 The capital assets listed below are disregarded for 26 weeks or longer where the local authority consider this to be appropriate, eg where a resident is taking legal steps to occupy premises as his home and the legal processes take more than 26 weeks to complete.

· premises which the resident intends to occupy as his home where he has started legal proceedings to obtain possession (26 weeks or longer where reasonable to enable resident to obtain possession)

Schedule 4 para 2

· capital received from the sale of a former home, where the capital is to be used by the resident to buy another house (26 weeks or longer where appropriate)

Schedule 4 para 3

· assets of any business-owned (or part-owned) by the resident in which he was a self- employed worker, where he has stopped work due to some disease or disablement, but intends to take up work again when he is fit to do so (26 weeks or longer where appropriate)

Schedule 4 para 5

· money acquired specifically for repairs to or replacement of the resident's home or personal possessions, provided it is used for that purpose (26 weeks, or longer where appropriate)

Schedule 4 para 7

· money deposited with a Housing Association as a condition of occupying a dwelling (disregard indefinitely), or which is to be used to purchase another home (26 weeks or longer where appropriate)

Schedule 4 para 7

· premises which the resident intends to occupy as his home where essential repairs or alterations are required (26 weeks from the date the resident takes action to effect the repairs, or longer where appropriate)

Schedule 4 para 16

· grant made under a Housing Act which is to be used to purchase a home or pay for repairs to make the home habitable (26 weeks or longer where appropriate)

Schedule 4 para 17

Disregarded for 52 weeks

6.029 The following payments of capital are disregarded for a maximum period of 52 weeks.

· arrears of, or compensation for arrears due to non-payment of:

· Mobility Allowance

· Mobility Supplement

· Attendance Allowance

· Constant Attendance Allowance

· Disability Living Allowance

· Exceptionally Severe Disability Allowance

· severe disablement occupational allowance

· armed forces service pension based on need for attendance

· pension under the Personal Injuries (Civilians) Scheme 1983, based on the need for attendance

· Income Support (or Supplementary Benefit)

· Family Credit (Family Income Supplement)

· Housing Benefit

· Special payments to pre-1973 war widows

Although the above payments will be paid for specific periods, they should be treated as capital not as income.

Schedule 4 para 6

· Payments or refunds for:

· NHS spectacles, dental treatment, patient's travelling expenses

· cash equivalent of free milk and vitamins

· expenses in connection with prison visits

Schedule 4 para 17

Disregarded for other periods

6.030 · Assets of a business-owned (or part-owned) by the resident in which he has ceased to be a self-employed worker, for a reasonable period to enable him to dispose of the business assets. (See 6.031 onwards)

Schedule 4 para 5

Meaning of reasonable period of disregard

6.031 It is not necessary for a person to have taken steps to realise his share of a business in order to qualify for a disregard. But he should be required to show that it is his clear intention to realise the asset as soon as practicable.

Information required

6.032 The local authority should request

1. information which describes the nature of the business asset;

2. the resident's estimate of the length of time necessary to realise the asset, or the resident's share of the assets;

3. a statement of what, if any, steps have been taken to realise the assets, what these steps were and what is intended in the near future

4. any other relevant evidence, for example the person's health, receivership, liquidation, estate agent's confirmation of placing any property on the market.

Action on receipt of information

6.033 If the person has taken steps to realise the capital value of the business, the value of the assets should be disregarded for the period considered to be reasonable, starting from the time the person ceased to be engaged in the business.

6.034 If the resident has no immediate intention of attempting to realise the business assets, the capital value of the assets should be taken into account.

Capital treated as income

Capital paid by instalment

6.035 If the resident is entitled to capital which is payable by instalments, add together:

a. the total of the instalments outstanding at the time the resident first becomes liable to pay for his accommodation or, in the case of a temporary resident whom the local authority have decided not to charge (as per para 3.005), the first day on which the authority decide to charge for the accommodation; and

b. the amount of other capital held by the resident.

If the total of a. and b. is over £8,000, treat the instalments as income.

If it is £8,000 or less, treat each instalment as capital

Reg 16(1)

Payments under an annuity

6.036 Any payment under an annuity will be treated as income (see 8.013)

Reg 16(2)

Earnings

6.037 Any income which is derived from employment is to be treated as earnings (see Section 9) and, as such should not be treated as capital.

Reg 16(3)

Income treated as capital

6.038 The types of income in the following paragraphs should be treated as capital.

Tax Refunds

6.039 Any refund of income tax charged on profits of a business or earnings of an employed earner.

Reg 22(2)

Holiday Pay

6.040 Any holiday pay paid by an employer more than 4 weeks after the termination of employment.

Reg 22(3)

Income from a capital asset

6.041 Income derived from capital, eg building society interest or dividends from shares, should be treated as capital from the date it is normally due to be credited to the resident's account. This does not apply to income from disregarded capital. (see 8.015)

Reg 22(4)

Bounty Payments

6.042 Any bounty paid at intervals of at least one year from employment as

· a part time fireman

· an auxiliary coastguard

· a part time lifeboatman

· a member of the territorial or reserve forces.

Reg 22(1)

Advance of earnings or loan from employer

6.043 Any advance of earnings or loan made to an employed earner by the employer, should be treated as capital. The payment does not form part of the employee's regular

income and would have to be repaid.

Reg 22(5)

Example

1. A resident received £294 in one week but the pay slip showed

that £200 of this was a loan made by the employer.

The local authority should treat £94 as earnings and £200 as capital.

Irregular charitable and voluntary payments

6.044 Apart from certain exemptions (payments from AIDS trusts), charitable and voluntary payments which are neither made regularly nor due to be made regularly should be taken into account as capital in the normal way.

Reg 22(7)

Arrears of contributions to a child's custodian

6.045 Any payments of arrears of contributions to a custodian towards the cost of accommodation and maintenance of a child should be treated as capital.

Reg 22(6)

Trust funds

6.046 The treatment of trust funds, to both capital and the income from the trust, is dealt with in Section (10).

Property

6.047 The treatment of property is dealt with in Section 7.

Notional capital

6.048 In some circumstances, a resident may be treated as possessing a capital asset even where he does not actually possess it. This is called notional capital.

Reg 25

6.049 A resident's capital is the total of all capital, whether actual or notional. That total amount is treated in accordance with the capital rules in Section 6.

Reg 21

6.050 Where a person has actual and notional capital, if the actual capital exceeds the capital limit, it is not necessary to consider the question of notional capital.

6.051 Notional capital may be capital:

a. which would be available to him if he applied for it;

b. which is paid to a third party in respect of the resident;

c. of which the resident has deprived himself in order to reduce the amount of charge he has to pay.

Capital available on application

6.052 Capital which would become available to the resident if an application were made, but which has not yet been acquired, is to be treated as belonging to the resident. This does not apply to:

1. capital held in a discretionary trust

2. capital held in a trust derived from a payment in

consequences of a personal injury.

3. any loan which could be raised against a capital asset

which is disregarded, for example the home.

Reg 25(2)

6.053 The local authority should distinguish between

1. capital already owned by the resident, but which in

order to realise he must make an application for, for

example:

· money held by the resident's solicitor

· Premium Bonds

· National Savings Certificates; and

2. capital not owned by the resident, but which will become

his on application being made, for example

· an unclaimed Premium Bond win

In the case of 1. the resident has the actual capital but not the notional capital. In the case of 2. the resident has no actual capital but should be treated as having notional capital

Date to be taken into account

6.054 When the local authority treats capital available on application as notional capital they should only do so from the date it could be acquired by the resident.

Capital paid by a third party in respect of the resident

6.055 Where the local authority agrees to place a resident in a home which is more expensive than those that the local authority would normally use and a third part, makes a lump sum payment to the local authority to contribute towards the cost of accommodation, the payment should be treated as capital belonging to the resident and should be taken into account in the assessment of the resident's charge.

Deprivation of capital

General

6.056 The local authority may feel that a resident has deprived himself of a capital asset in order to reduce his accommodation charge. If this is the case the local authority may treat the resident as still possessing the asset. The following factors will need to be considered.

Reg 25(1)

Forms of capital to be considered

6.057 The local authority should only consider questions of deprivation of capital when the resident ceases to possess capital which would otherwise have been taken into account.

eg a resident gives a diamond ring worth £2,000 to her daughter the week before she entered residential accommodation. The local authority should not consider deprivation as, had the ring still been possessed, it would not be taken into account as capital. However, if the resident had purchased the ring immediately prior to giving it to her daughter with £2,000 which had previously been in a Building Society account, deprivation should be considered.

Ownership

6.058 The local authority should decide from available evidence whether the resident owned the capital (see 6.007 and 6.008 for details of ownership).

Has deprivation occurred?

6.059 It is up to the resident to prove that he no longer has a resource. Failure to do so will result in the local authority treating the resident as if he still possesses the actual capital. Examples of acceptable evidence of the disposal of capital would include

· a trust deed

· deed of gift

· receipts for expenditure

· proof that debts had been repaid

6.060 Examples of where a person has deprived themselves of capital (although not necessarily for the purposes of avoiding a charge for accommodation)

· A lump-sum payment has been made to someone else (eg as a gift or to repay a debt)

· Substantial expenditure has been incurred (eg on an expensive holiday)

· The title deeds of a property have been transferred to someone else

· Money has been put into a trust which cannot be revoked

· Money has been converted into another form which would fall to be disregarded (eg personal possessions)

· Capital has been reduced by living extravagantly (eg gambling or following a much higher standard of living than the resident could normally afford)

Purpose of disposing of an asset

6.061 There may be more than one purpose for disposing of a capital asset only one of which is to avoid a charge for accommodation. Avoiding the charge need not be the resident's main motive but it must be a significant one.

6.062 If, for example, a person has used capital to repay a debt, careful consideration should be given to whether there was a need for the debt to be repaid at that time. If it seems unreasonable for the resident to have repaid that debt at that time, it may be that the purpose was to avoid a charge for accommodation.

Examples

A person has £9,000 in the bank. He is about to move permanently to a residential care home, and before doing so, pays off £3,500 outstanding on a loan for home improvements. It would be reasonable in these circumstances not to treat him as having deprived himself of the £3,500 deliberately in order to reduce his residential accommodation charge.

A resident has £5,000 in a building society. Two weeks before entering the home, he bought a car for £10,500 which he gave to his son on entering the home. If the resident knew he was to be admitted permanently to a residential care home at the time he bought the car, it would be reasonable to treat this as deliberate deprivation. However, all the circumstances must be taken into account. If he was admitted as an emergency and had no reason to think he would not be in a position to drive the car at the time he bought it, it would not be reasonable to treat it as deliberate deprivation.

Timing of the disposal

6.063 The timing of the disposal should be taken into account when considering the purpose of the disposal. It would be unreasonable to decide that a resident had disposed of an asset in order to reduce his charge for accommodation when the disposal took place at a time when he was fit and healthy and could not have foreseen the need for a move to residential accommodation.

Conversion of capital to personal possessions

6.064 Where, for the purpose of avoiding or reducing the charge for accommodation, capital which would not have been disregarded has been used to acquire personal possessions, the current market value of those possessions should be taken into account as an actual resource. Their market value should not be disregarded under para 6.027.

6.065 If the resident, in depriving himself of an actual resource, converted that resource into another actual resource of lesser value, he should be treated as notionally possessing the difference between the value of the new resource and the one which it replaced eg, if the value of personal possessions acquired is less than the sum spent on them the difference should be treated as a notional resource.

Deprivation decided

6.066 If the local authority decides that the resident has disposed of capital in order to avoid a charge or to reduce the charge payable, the local authority will need to decide whether to treat the resident as having the capital (notional capital) and assess the charge payable accordingly; and then whether:

a. to recover the assessed charge from the resident; or

b. if the resident is unable to pay the assessed charge, to use the provisions of the Health and Social Services and Social Security Adjudication Act 1983 to transfer the liability for the part of the charges assessed as a result of the notional capital. This is the subject of separate guidance.

Diminishing notional capital

Calculation of the rate at which notional capital should reduce

6.067 Where a resident has been assessed as having notional capital that capital will have to be reduced each week by the difference between the rate which he is paying for the accommodation and the rate he would have paid if he was not treated as possessing the notional capital.

Reg 26

Example

A resident is assessed as having notional capital of £6,250 plus actual capital of £2,000. This results in him having to pay the standard charge of eg £170.

If he did not possess the notional capital, his capital would not affect his ability to pay for the accommodation so, based on an income of £82 and a personal allowance of, for example, £12 he would be assessed as paying a charge of £70.

The notional capital should be reduced by £100 per week ie the difference between the sum he has to pay because of the notional capital (£170) and the charge he would have had to pay if the notional capital did not exist (£70).