[2024] UKUT 222 (AAC)

Addressing whether ZA had capital or was to be treated as having capital

In the 23 March 2021 entitlement decision, Barnet stated that ZA had capital in excess of £16,000. However, Barnet’s later letters dated 17 December 2021 and 17 February 2022 contradicted this, stating ZA was to be treated as having capital in excess of £16,000. In paragraph 10 of the submissions in its Response to the appeal (page 32 of bundle), Barnet stated that ZA and JA were therefore treated as possessing their share of the capital value of the company (meaning CG). Barnet stated: “That capital is treated as actual capital under regulation 43”.

The tribunal stated at paragraph 6 of its decision notice and paragraph 30 of its Statement of Reasons that the issue was whether ZA could be treated as possessing capital in excess of £16,000. At paragraphs 3 and 10 of its decision notice, the tribunal decided ZA was to be treated as having capital in excess of the £16,000 limit. The tribunal agreed with Barnet’s reasoning that there was substantially in excess of £16,000 funds in each of the companies to which ZA and JA had access to pay their rent.

At paragraph 43 of the Statement of Reasons, the tribunal stated it had refused the appeal in accordance with regulation 43 and 49(5) and therefore did not need to consider the alternative grounds put forward by Barnet.

I directed Barnet to explain whether it had decided ZA had capital exceeding £16,000 or had instead decided to treat her as having that capital. Barnet’s response stated its 23 March 2021 entitlement decision was that ZA held capital above the capital limit on the basis it decided the capital held in the company (CG) belonged to her. Barnet stated the use of “treated” in its decision letter dated 17 February 2022 was misleading (page 3 of latest response).

Section 6 of Part 6 of the 2006 regulations deals with calculating capital. It uses the following structure:

Regulation 49(1) applies where a claimant deprives himself of capital for the purpose of securing entitlement to housing benefit or increasing that entitlement. Barnet had raised this as an alternative argument in its initial Response to the appeal but did not use that provision to make the entitlement decision.

Regulation 49(5) provides a discretionary power where a claimant stands in relation to a company in a position analogous to that of a sole owner or partner in the business of the company. Regulation 49(5)(a) disregards the value of the person’s holding in the company. Regulation 49(5)(b) treats the person as possessing an amount of capital equal to the value of the capital of that company (or of his share of that value). Regulation 49(5)(b) applies the earlier provisions of Section 6 to calculate the amount as if it were actual capital the person possesses.

Regulation 49(5)(b) states expressly that it is subject to regulation 49(6). This provision disregards the amount of capital calculated under regulation 49(5)(b) for as long as the person undertakes activities in the course of the business of the company.

The tribunal stated at paragraph 43 of its Statement of Reasons that it had refused ZA’s appeal in accordance with regulation 43 and 49(5) and therefore did not proceed to consider any of Barnet’s alternative arguments (i.e., deprivation of capital under regulation 49(1), how the decision in Prest might apply and notional income under regulation 42(9)).

However, the tribunal decided that regulation 49(5) is discretionary and that Barnet had validly decided not to exercise it in ZA’s case (paragraphs 36-37 of Statement of Reasons). The tribunal therefore appeared to decide it would not apply regulation 49(5) to treat ZA as having capital.

The provisions in Section 6 of the 2006 regulations that allow a claimant to be treated as having capital, are regulation 46 (income treated as capital) and regulation 49 (notional capital). In my assessment, these provide an exhaustive list of the ways in which a person can be treated as having capital under Section 6. Regulation 46 has no clear application to ZA’s circumstances. Furthermore, Barnet did not raise it and it the tribunal did not mention it in either its decision or Statement of Reasons. As stated above, the tribunal did not consider deprivation of capital under regulation 49(1) and decided it was appropriate not to apply regulation 49(5).

This means the tribunal treated ZA as having capital, but without applying any of the provisions in Section 6 allowing it to do so. I am satisfied this was a material misdirection in law. Further or alternatively, I am satisfied the tribunal’s reasons were inadequate, because they do not make clear which provisions in the 2006 regulations it applied to ZA and how it calculated her capital.