Universal credit capital rules
Property, savings and other capital are taken into account when assessing entitlement to universal credit, unless they can be disregarded.
How capital affects universal credit
The DWP must assess how much capital a person has when it calculates a claimant's entitlement to universal credit.[1]
‘Capital’ is not defined in the universal credit regulations. Capital refers to lump-sums or one-off payments, and includes:
savings
property
statutory redundancy payments
inheritances
compensation for financial loss
This list is not exhaustive.
Whose capital is taken into account
Capital belonging to the claimant affects their entitlement to universal credit. This includes when the claimant is not the legal owner of property but has a beneficial interest.[2]
A couple's combined capital is taken into account when they have a joint claim for universal credit.[3]
When one member of a couple is ineligible to claim universal credit and the other person has to make a single claim, the ineligible partner's capital is included when assessing entitlement.[4] For example, if one member of the couple is not able to claim because of the immigration and residence rules.
Capital belonging to a claimant's child is not included when assessing entitlement to universal credit.
Capital limits
Claimants who are assessed as having less than £16,000 capital can be entitled to universal credit. Capital below £6,000 is ignored and does not affect the award.
Capital between £6,000 and £16,000 is subject to a 'tariff income'. This means that the claimant's universal credit award will be reduced.
Claimants with capital of over £16,000 are not entitled to universal credit.[5]
The capital limits are the same for single claimants and couples.
Some capital can be disregarded and is ignored when calculating entitlement to universal credit.[6]
Calculating tariff income from capital
Capital between £6,000 and £16,000 is subject to a 'tariff income'. This means that it is assumed to equate to an income of £4.35 per month for each £250 over £6,000.[7]
For example, the calculation for a claimant who has been assessed as having £8110 capital is as follows:[8]
| Calculation step | Example result |
|---|---|
| 1. Deduct £6000 from the total capital | £2110 |
| 2. Divide the remaining amount by £250 | 8.44 |
| 3. Round up the result to the nearest whole number | 9 |
| 4. Multiply the result by £4.35 | £39.15 |
The resulting tariff income is treated as unearned income for the purposes of calculating entitlement.[9] The sum is deducted pound for pound from the claimant's maximum universal credit, along with any other deductions.
How capital is valued
The DWP values each item of capital based on its current market or surrender value. The following is deducted:[10]
10% of the value if selling the item would involve costs
any debt or charge secured on it
The DWP can ignore the value of capital which a claimant is holding for someone else if they can provide evidence that the capital is not theirs. For example, property held on trust for the claimant's child.
Market value
The current market value means the price that a willing buyer will pay a willing seller in the appropriate market.[11] For example, when working out the market value of a property, the DWP must look at its value in the property market.
DWP guidance instructs decision makers to work out the current market value either:[12]
themselves
based on evidence given by the owner of the capital
based on evidence from an expert valuer
Joint ownership
When a claimant owns capital jointly with other people, it is assumed that the value should be divided equally between the owners. The claimant must supply evidence to support a statement that their share is different.[13]
DWP guidance states that decision makers should ensure that a valuation by an expert has taken into account the willingness of other owners of the property to sell. They should also determine whether the court would order the sale of the property as a whole or in part and how this could affect the market value.[14]
Claimants might be able to argue that the capital value of their share of a property is nominal or nil in a ‘real world market’ if it is occupied by another joint owner who is unwilling to sell and a court would not order to force a sale.[15]
Disregarded capital
Some capital can be disregarded if certain conditions are met. This can include:[16]
property
business assets
the value of a personal pension scheme
surrender values of life assurance policies and investments
arrears and lump sums of benefits and tax credits
personal injury and other compensation payments
This list is not exhaustive.
The rules for when each type of capital can be disregarded are different, including the length of time that the disregard applies.
Disregarded property
A claimant's home is disregarded while they are living in it. Only one property can be treated as a person's home.[17]
DWP guidance states that a claimant's property can be disregarded during a temporary absence if they usually occupy it as their home and intend to return. The guidance includes an example of a person who goes into residential care on a temporary basis and intends to return to their home. There is no time restriction on how long the temporary absence can last for.[18]
Property is disregarded for an unspecified amount of time when it is being occupied by either the claimant's:[19]
close relative who has limited capability for work
close relative who has reached pension age
partner from whom they are not estranged but are forced to live apart, for example because the claimant is in residential care
Property is disregarded for six months when the claimant:[20]
has ceased to occupy their home following a relationship breakdown
has acquired it but not moved in yet
is taking steps to obtain possession of it
is taking reasonable steps to dispose of it
is carrying out essential repairs or alterations to make it fit for occupation
The DWP can use its discretion to extend the disregard period beyond six months where it is reasonable to do so in the circumstances.[21] DWP guidance gives examples of when it might be reasonable to disregard the property for longer.[22]
Relationship breakdown
Property is disregarded for six months when the claimant has ceased to occupy their home following a relationship breakdown.[23] The six months start from when the claimant moved out of their home.
The property can continue to be disregarded indefinitely if their former partner continues to live in the property and is a lone parent.[24] When this is not the case, the property can continue to be disregarded if another ground for disregarding property applies.
There are no additional provisions in the universal credit regulations to disregard capital when the claimant has experienced domestic abuse.
Money received in relation to property
Money can be disregarded for six months when it has been acquired:[25]
to purchase a home, for example from the sale of the claimant's former home
for essential repairs or alterations to the claimant's home, or a property they intend to occupy as their home
from an insurance policy in connection with the loss or damage to the claimant's home or personal possessions
The DWP can use its discretion to extend the period beyond six months where it is reasonable to so in the circumstances.[26] DWP guidance gives examples of when it might be reasonable to disregard the property for longer.[27]
Personal possessions
Personal possessions are not treated as capital when working out entitlement to universal credit.[28] This means any physical assets other than land, property or business assets.[29]
In an Upper Tribunal case the Commissioner decided that a moveable but static caravan, which was attached to mains services on a non-residential site, was a personal possession.[30]
Deprivation of capital and notional capital
Claimants can be treated as having capital that they have deprived themselves of with the intention of becoming entitled to universal credit or increasing entitlement.[31]
Deprivation can mean that someone has purposely spent or given away their capital, or failed to acquire it. The DWP must show that the claimant's significant purpose was to become entitled to universal credit or increase their entitlement, even if it was not their main purpose.[32] For example, the main purpose of someone giving their capital away to a relative might be to benefit the relative, but a significant purpose could also be to reduce their capital so that they are entitled to universal credit.
Claimants have not deprived themselves of capital when it has been used to:[33]
pay off or reduce a debt
pay for goods and services if the purchase was reasonable in the claimant's circumstances
Diminishing notional capital
When the DWP decides that a claimant has deprived themselves of capital, their universal credit entitlement is based on them still having it. This is called 'notional capital'.
It is assumed that the value of notional capital will reduce over time.[34] This is called the 'diminishing notional capital rule'.
Where the claimant's capital is assessed as being more than £16,000, their notional capital is reduced each assessment period by the amount of universal credit they would have been awarded if they were not assessed as having capital.
Where the claimant's capital is assessed as being between £6,000 and £16,000, their notional capital is reduced each assessment period by the tariff income that has been calculated in the assessment period before.
Migrating tax credit claimants and capital
Capital is not taken into account when working out entitlement to child or working tax credits. Tax credits are legacy benefits which are being replaced by universal credit. People cannot normally make a new claim for tax credits. Existing claimants are being migrated to universal credit.
People who have been entitled to tax credits might have too much capital to be entitled to universal credit.
Managed migration
Tax credit claimants who claim universal credit as part of the managed migration process are entitled to a transitional capital disregard.[35] This means that any capital over £16,000 is disregarded when calculating their entitlement to universal credit for a maximum of 12 months.[36]
Managed migration is when a legacy benefit claimant is sent a migration notice from the DWP instructing them to claim universal credit by a deadline. Claimants are entitled to a transitional capital disregard when they apply for universal credit within a month of the deadline given in the migration notice.[37]
The transitional capital disregard no longer applies in an assessment period where the claimant's capital has dropped below £16,000. The transitional capital disregard cannot be reapplied in subsequent assessment periods if the claimant's capital increases again.
Natural migration
Natural migration is when someone has a change in circumstances which means they are no longer entitled to legacy benefits and claims universal credit instead.
Tax credit claimants who move to universal credit as a result of natural migration are not entitled to a transitional capital disregard. Claimants who have more than £16,000 in capital will not be entitled to universal credit unless it can be disregarded.
Challenging decisions about capital
Decisions about how capital is valued and whether it should be disregarded are often discretionary. The DWP must look at each case on its individual merits.
DWP guidance states that the onus is on the claimant to provide evidence to the DWP that their capital should be disregarded.[38] Claimants can add a note to their online journal or contact the universal credit helpline to explain how their capital should be valued or why their capital should be disregarded. They should provide as much evidence as possible.
Claimants who disagree with a decision about their capital can ask for a mandatory reconsideration of the decision. If this is unsuccessful, they can appeal to the First-tier Tribunal.
Read more about challenging a universal credit decision.
Last updated: 17 March 2023