THE DEPRIVATION OF CAPITAL RULE
IN WELFARE BENEFITS
A SUMMARY OF THE CASE LAW ON ITS APPLICATION
Under the 'deprivation of capital rule', a claimant who deprives him or herself of capital for the purpose of retaining or obtaining entitlement to means-tested benefits (i.e. Income Support, Housing and Council Benefit, income-based Jobseeker's Allowance, income-based Employment and Support Allowance and State Pension Credit) will be treated as depriving themselves of capital. Under the regulations the claimant will then be treated as still possessing the value of the actual capital given away as "notional capital" for benefit purposes, (subject to its value diminishing over time by means of a calculation under the 'diminishing notional capital rule'). See for example Housing Benefit Regulations 2006 (SI 2006/213) reg 49 (similar provisions apply to each of the means-tested benefits listed above).
Knowledge of the capital rules
Case law has stressed the necessity of a positive finding of fact that the person knew of the existence of a capital limit (R(SB) 2/91). The level of knowledge that is required to allow an inference of a significant operative purpose will depend on the circumstances of the case, including what the claimant has done, (CH/264/2006 paras. 8-9 (click here for transcript). However, it would be impossible to infer that a claimant disposed of capital for a particular purpose if the claimant did not know that the amount of capital could affect entitlement to benefit. Once the tribunal has identified the extent of the claimant’s knowledge, however, it will then be necessary for the tribunal to consider what can be inferred from that and the other circumstances of the case. The claimant’s knowledge is not necessarily conclusive; it is always possible that a claimant who has knowledge of the capital rule does not act on it (CH/264/2006, paras. 10-11) (click here for transcript).
Significant Operative Purpose
The central question in deprivation cases is whether the claimant intended to deprive him or herself of capital so as to secure entitlement to benefit. The claimant must have had this in mind as a "significant operative purpose".
R(SB) 12/91 (click here for transcript) held that if a claimant has a legally enforceable debt that is immediately repayable, the payment of the debt cannot be regarded as within the provision on intentional deprivation of capital for the purpose of securing entitlement to benefit. A person has no choice but to pay his or her debts. But it does not follow that, if a claimant does have a choice (e.g. if a debt is not legally enforceable or is not immediately repayable) and knows of the actual capital rules, it must be concluded that securing benefit was a significant operative purpose. However, many decisions, such as R(SB) 40/85; and R(IS) 15/96 para 8 (click here for transcript), have accepted that "if a claimant has a choice, that does not necessarily preclude a conclusion that the securing of benefit or increased benefit is not a significant operative purpose at all".
CJSA/1425/2004 (click here for transcript) held that In order to decide whether it is the significant operative purpose consideration must be given to whether making the payments was reasonable and the threat of having to make high interest payments is just as capable of making it reasonable to pay a debt as the threat of enforcement of a liability to repay.
CIS/1775/2007 (click here for transcript) held that a tribunal was wrong to find that a claimant is to be expected to spend all of an inheritance solely in paying for living expenses which had previously been covered by income support, housing benefit and council tax benefit.
Case law has also drawn attention to the fact that the test for intention in deprivation cases is a subjective one (R(H) 1/06, para. 22) (click here for transcript):
"Whether the securing of entitlement to benefit was, in this sense, among the purposes which led any particular claimant to act as he did is a question that must be determined by the tribunal of fact in the circumstances of each individual case, the test as already noted being one of subjective purpose: see in the housing benefit context R (Beeson) v Dorset County Council  EWHC Admin 986, 30 November 2001, per Richards J at paragraphs 9, 37 (not challenged on this point in the Court of Appeal). In the great majority of cases this must be a matter of drawing such inferences as the tribunal of fact thinks fit from the surrounding circumstances, such as the claimant's state of knowledge of the rules, the nature and timing of the disposals he makes and the timing and manner of his claims for benefit; since direct evidence to show such a purpose is in the nature of things unlikely."
In summary, the law requires that the tribunal must be positively satisfied that the claimant had a positive intention to secure benefit entitlement as a significant operative purpose. On the other hand, the fact that securing benefit may have been a foreseeable consequence of an action does not automatically lead to the conclusion that this was the intention behind the action. It all depends on the particular circumstances of the case (CH/1873/2005, para. 10) (click here for transcript).
Moreover, a tribunal is not entitled to infer that the claimant has the relevant purpose simply from rash or excessive expenditure; the tribunal has to go further and consider whether, on its assessment of the claimant’s character and thinking, this is what actually happened (R(H) 1/06, para. 13). The reasonableness or otherwise of the claimant’s action is not decisive; an, inference must depend on all the circumstances of the case (CIS/0264/2006, para. 15) (click here for transcript).
The Upper Tribunal has confirmed that the test for deprivation is one of purpose, and that the obtaining of benefit must form a positive part of the claimant's planning: see CH/1752/2011;  UKUT 500 (AAC); SH v London Borough of Tower Hamlets (HB), paras. 10-11 (click here for transcript). The Upper Tribunal said that when considering a claimant's explanation for their actions, the tribunal should consider whether the claimant may simply have made an unreasonable judgment about some aspect of the steps s/he was taking or of their consequences, or although knowing of Housing Benefit, s/he may just not have thought about it. If the claimant has not thought about it, then they cannot have acted for the purpose of obtaining the benefit. This will be a matter of judgment for the tribunal to decide on a case- by-case basis.