|Commissioner's File: CIS/563/91
SOCIAL SECURITY ACT 1986
SOCIAL SECURITY ADMINISTRATION ACT 1992
APPEAL FROM DECISION OF SOCIAL SECURITY APPEAL TRIBUNAL ON A QUESTION OF LAW
DECISION OF THE SOCIAL SECURITY COMMISSIONER
Social Security Appeal Tribunal:
1. The claimant's appeal is allowed. The decision of the Battersea social security appeal tribunal dated 11 July 1991 is erroneous in point of law, for the reasons given below, and I set it aside. The appeal is referred to a differently constituted social security appeal tribunal for determination in accordance with the directions given in paragraphs 18 to 35 below (Social Security Administration Act 1992, section 23(7)(b)).
2. Since I have decided that there must be a complete rehearing of the appeal by a new appeal tribunal I set out here only the essential factual background, which is not in dispute. The claim for income support was made on 21 January 1991. At that date the claimant owned three properties. One was in London, which was his home. A mortgage of £125,000 had been charged on the property on 26 August 1988, on which £133,565 was currently outstanding (because of the deferred interest basis of the loan). The second was in Lincolnshire, which was occupied by the claimant's mother, who was over 60. The third was in London, which was then occupied by tenants under an assured shorthold tenancy, paying rent of £433 per month. and were freehold; was held under a 120 year lease. Of the mortgage of £125,000 a substantial amount had been used to pay the purchase price of and £50,000 had been used to purchase the claimant's mother's half-share in . His mother had made him a gift of the other half-share. The claimant also had savings of £2,000.
3. On substantially that evidence, the adjudication officer on 25 February 1991 decided that the claimant was not entitled to income support from 21 January 1991 because the capital value of could not be disregarded and took his capital over the limit of £8,000. The claimant appealed against that decision on 11 March 1991. In a letter acknowledging receipt of the appeal and requesting some further information, an appeals officer asked the claimant whether he was prepared to take steps to sell and pointed out that, if he was, then its capital value could be disregarded for a period and he might be entitled to benefit. In a letter dated 6 April 1991 the claimant replied that he was prepared to sell and had put the property in the hands of estate agents. Once the adjudication officer was satisfied by further evidence that steps had first been taken to dispose of on 6 April 1991, a review decision was given that from 6 April 1991 the claimant was entitled to income support of £4.75 per week rising to £7.52 per week from 11 April 1991. That was based on treating only the interest on £50,000 out of the mortgage of £125,000 as eligible interest and on taking into account the income from the tenants of in full at £99.92 per week. There was a reference in the presenting officer's oral submission to the appeal tribunal to a new claim having been made on 12 April 1991, because the previous claim had been treated as closed on the claimant's failing to "sign on" on 12 February 1991, but there appears to be no other evidence of such a claim.
4. The claimant attended the hearing before the appeal tribunal on 11 July 1991. He put in a written statement of grounds (at pages 38 and 39 of the papers before me), in which he submitted that in the treatment of his income from the tenants no allowance had been made for income tax, maintenance charges, ground rent or water rates and that the tenants had left as the property was up for sale. The presenting officer effectively maintained that the adjudication officers' decisions had been correct.
The appeal tribunal's decision
5. The appeal tribunal's decision was as follows:
"APPEAL DISMISSED: The claimant is not entitled to Income Support in respect of his claim made on 21 January 1991. There is no appeal before us in respect of the claimant's fresh claim made on 9 April 1991. If we are wrong, and there is such an appeal before us, we dismiss it and confirm that in respect of that claim the claimant is entitled to income support from 6 April 1991 of £4.75 per week continuing (subject to uprating) until circumstances change (a review being due upon the quitting of claimant's tenants)."
The findings of fact set out the matters described above, and found that there was a fresh claim on 9 April 1991. I need not set out the reasons for decision in full. The appeal tribunal concluded that the capital value of could only be disregarded under paragraph 26 of Schedule 10 to the Income Support (General) Regulations 1987 ("the Income Support Regulations") and that the conditions of that paragraph were not satisfied until 6 April 1991. Therefore, the claim of 21 January 1991 failed on the capital test. The appeal tribunal was of the view that that claim had not been closed by the failure to sign on, but concluded that there could not be a review of a refused claim on a change of circumstances, so that the claimant ought to make a fresh appeal against the decision to award income support. But, in case it was wrong about that, it went on to consider entitlement from 6 April 1991. On the questions of the allowable mortgage interest and the treatment of the income from the tenants its reasons were recorded as follows:
"The claimant borrowed £125,00. This was, certainly, within the framework of a family arrangement. We had some difficulty in following this in its entirety: prior to claimant's acquisition of his home from his mother, we gather that, for inheritance tax purposes, there was some transfer of a 50% beneficial interest as a gift to claimant, and that it was for the remaining beneficial interest that he paid £50,000 which was shown as the purchase price on the transfer document. The remaining £75,000 was applied in buying , renovating it, decorating it and paying related costs. However, it seems to us that the claimant, having chosen to structure the transactions in a particular way for (no doubt legitimate) tax avoidance reasons, must take "the rough with the smooth". Thus only £50,000 can be treated under paragraph 7(5) as applied for the purpose of acquiring an interest in the dwelling occupied as the home and only the interest in that portion will qualify as "eligible interest". Moreover, we do not see how any of the "deferred interest" which arose before the claim can be treated as part of that capital: certainly not under paragraph 7(6) which exists only to help where arrears have accumulated because of the 50% reduction for the first 16 weeks - which started here only from 6/4/91.
The fourth issue before us was whether any outgoings could be set against the £433 per month rent which the claimant received for the investment property. Schedule 9 deals with this question, and we can find nothing relevant except, possibly, under paragraphs 1 (Income Tax) or paragraph 22(2) (Rates or Mortgage Repayments). There are no mortgage repayments in respect of the investment property and no rates in evidence - water charges are no longer rates. With regard to income tax, there was no evidence before us. However, a review is due because of the change in circumstances of the tenants having just left; and we recommend that the tax position be investigated in this review. Subject to the aforegoing, the computation made by Adjudication Officer appeared to us to be entirely correct."
The chairman recorded in box 3 of form AT3 his grant of the claimant's oral application for leave to appeal to the Commissioner.
6. I can pass over much that was put forward in the subsequent exchanges of submissions and observations. The first submission dated 7 February 1992 on behalf of the adjudication officer did not support the claimant's appeal. An oral hearing was fixed for 22 June 1992, which was adjourned to enable further written submissions to be made. Further submissions were made in which the adjudication officer submitted that the appeal tribunal erred in law in not including in eligible interest the interest on the amount of the £125,000 loan used to pay for the legal costs and other expenses incurred in acquiring and in deciding that water charges were not the same as water rates, but otherwise was legally right, especially about the taking into account of "gross" income, subject only to any disregard applicable under Schedule 9 to the Income Support Regulations. Following a further oral hearing on 21 December 1992, the Commissioner postponed the giving of a decision because the question had arisen whether the value of should be disregarded entirely under paragraph 5 of Schedule 10 to the Income Support Regulations as a reversionary interest and the meaning of paragraph 5 was to be decided by a Tribunal of Commissioners in the appeal on Commissioners' file CIS/85/1992. Once the decision was made in that appeal, the adjudication officer, as had been directed by the Commissioner, made a further detailed submission dated 30 July 1993. The claimant submitted his own observations in reply, but had some difficulty in securing expert representation in which he had confidence, and which was clearly needed in a complex case. Eventually, his case was taken by the Free Representation Unit, which made a written submission on 9 January 1994. A further oral hearing was fixed for 28 April 1994.
Was the appeal tribunal's decision erroneous in point of law?
7. It was a matter of agreement before me that the appeal tribunal did err in law, although there was not agreement on the extent of the errors. Since it is absolutely clear that the appeal tribunal did not consider paragraph 5 of Schedule 10 to the Income Support Regulations at all, as we now know, following the decision in CIS/85/1992, that it should have done, it is simplest for me to set aside the decision of 11 July 1991 on that ground. I shall then deal with the outstanding questions of law in considering the directions to be given to the new appeal tribunal which must rehear this appeal. I am not myself in a position to make the necessary findings of fact in order to determine the claim for the whole period now in issue, so that the appeal must be referred to a differently constituted social security appeal tribunal for determination in accordance with the directions given in paragraphs 18 to 35 below.
The submissions at the oral hearing
8. The claimant attended the oral hearing before me and was represented by Mr Nicholas Isaac of the . The adjudication officer was represented by Mr Stephen Cooper of the Office of the Solicitor to the Department of Social Security, accompanied by Mr George Roe of Central Adjudication Services. I am particularly grateful for the succinct and penetrating submissions made by both representatives.
9. Mr Isaac first adopted the view expressed in the adjudication officer's submission dated 30 July 1993 that the period In issue ran from 21 January 1991 down to the date of the final determination of the claim. The claimant maintained that he had been receiving income support continuously since April 1991 and that the suggestion that the award had been terminated (see page 152) or that the claimant had ceased claiming from 28 May 1992 (see page 194) was based on a misunderstanding.
10. Second, he submitted that for periods when the claimant's interest in was subject to a tenancy the capital value of the property had, following CIS/85/1992, to be disregarded under paragraph 5 of Schedule 10 to the Income Support Regulations.
11. The third question he identified was the treatment of the rent paid by the tenants of . He initially submitted that whenever a tenancy existed, and therefore the disregard under paragraph 5 was applicable, the income derived from the property was to be treated as capital by virtue of regulation 48(4) of the Income Support Regulations. It was pointed out that for some weeks when a tenancy existed, was up for sale, so that the conditions of paragraph 26 of Schedule 10 to the Income Support Regulations were met, and that income derived from capital disregarded under paragraph 26 is excluded from the operation of regulation 48(4). Mr Isaac's answer was that if the circumstances initially clearly fell within paragraph 5, the effect of regulation 48(4) should not be removed when the property was put up for sale. Alternatively, tenanted property falls more clearly within paragraph 5 and primacy should be given to that provision. He submitted that the provisions on capital, in particular regulation 46(1), did not define what was meant by "the whole income treated as capital", so that one had to look to the provisions on income to see what would have been taken into account as income. He relied on CIS/25/1989, in which the principle of Parsons v Hogg  2 All ER 897 (appendix to R(FIS) 1/85) was applied to income other than earnings for income support purposes, so that the necessary expenses of getting the income, but not income tax, would be deducted to reach a figure of gross income. That also was the assumption of the Tribunal of Commissioners in paragraph 37 of CIS/85/1992. However, he considered that the opposite view would produce the same practical result, because even if £433 was added to the claimant's capital each month, the necessary expenses had to be, and were, paid. That reduced the claimant's capital in a way that could not possibly be caught by regulation 51(1) of the Income Support Regulations on the deprivation of capital.
12. The fourth question was that of eligible interest, where the appeal tribunal's findings of fact on the transaction by which the claimant acquired the entire beneficial interest in
were said to have been seriously deficient. Mr Isaac submitted in essence that £50,000 was far less than the value of a half-share of the beneficial interest and that the purpose of acquiring an interest in the dwelling occupied as the claimant's home could only have been achieved by providing his mother with a home for life. If it was accepted that expenditure on the necessary legal and other expenses of acquiring the interest in came within paragraph 7(3) of Schedule 3 to the Income Support Regulations, so could the necessary expenditure to provide the claimant's mother with a life interest in . The interest on an amount equal to the value of a life interest in should be allowed as eligible interest. Although the transfer of the claimant's mother's half-share in expressly described the consideration as the payment of the £50,000, the agreement to provide a life interest in other property could take effect as a collateral contract (De Lassalle v Guildford  2 KB 215). Findings of fact on the existence or otherwise of such an agreement were necessary.
13. In reply, Mr Cooper submitted on the first point that since the claimant had appealed against the refusal of the original open-ended claim, the period in issue before the appeal tribunal extended down to the date of its decision, unless the claim was withdrawn. The failure to sign on did not indicate such a withdrawal. The award of income support from 6 Apri1 1991 appears to have been made following a review. The effect of section 104(3B) of the Social Security Act 1975 (section 29 of the Social Security Administration Act 1992) is that the review was of no effect and the claimant's existing appeal continued in being. The award of benefit on a fresh claim does not necessarily terminate the running of an open-ended claim (R(S) 1/83). The new appeal tribunal would have to determine' whether the claimant stopped claiming in May 1992.
14. On the second point, he agreed that the appeal tribunal's decision had been superseded by the decision in CIS/85/1992. Paragraph 5 of Schedule 10 to the Income Support Regulations applies even though the property is itself leasehold.
15. On the question of the treatment of the income from the tenants, Mr Cooper submitted that the income did not represent earnings from self-employment. The claimant had not asserted that the income had that quality, which would have been an unlikely conclusion in the circumstances. The problem of an overlap between paragraphs 5 and 26 of Schedule 10 had not been addressed in any of the written submissions or skeleton arguments. Mr Cooper submitted that there was no specific provision providing an answer and that the problem appeared not to have been contemplated. He disagreed with Mr Isaac. Under regulation 46(2) of the Income Support Regulations both paragraphs applied for the overlap period, and from the date when paragraph 26 applied the exception to regulation 48(4) operated. The income was then no longer to be treated as capital, and any disregard as income came under paragraph 22(2) of Schedule 9 to the Income Support Regulations. There was nothing in the terms or the context of Schedule 10 to indicate that paragraph 26 only applied where no other disregard applied.
16. Whether the income was to be treated as income or capital, the question of whether gross or net income was to be taken into account arose, but would be more important while it was treated as income. Regulation 40(1) provides that the income to be taken into account is a claimant's "gross income", subject to the disregards in Schedule 9. Mr Cooper referred to the dictionary meaning of "gross" as "entire, total, whole...opposite of net" and submitted that some meaning has to be given to the word in regulation 40(1). The form of the disregards in Schedule 9 showed that the draftsman intended it to have its ordinary, dictionary meaning. He pointed to paragraphs 1 and 22(2) of Schedule 9 as expressly dealing with the deduction of expenses from gross income. In particular, there would be great difficulty in construing paragraphs 19 and 20 (on payments for accommodation and board and lodging) if the disregards in those paragraphs were applied to net income. So far as existing case-law was concerned, Mr Cooper submitted that Parsons v Hogg was concerned with provisions in the family income supplement scheme which were far less detailed than those in the income support scheme. It was also concerned with earnings from employment, and with the contrast with the treatment of earnings from self-employment, where the net profit was taken. Thus, its principle would not apply to the much more detailed and specific context of income other than earnings in the income support scheme. Decisions such as R(FC) 1/90 and CIS/317/1992 (to be reported as R(IS) 16/93) applying the principle of Parsons v Hogg to earnings from employment in the family credit and income support schemes were distinguishable on that ground. Even in relation to earnings from employment, the authority was divided, because in R(IS) 6/92 and CIS/77/1993 the Commissioner assumed that the full amount of an attendance allowance paid to a local councillor would count as earnings, without any deduction for necessary expenditure by the councillor. The one decision which clearly applied the principle of Parsons v Hogg to income other than earnings was CIS/25/1989. Mr Cooper submitted that that decision was wrongly decided. In the present case, the result was that there might be a limited disregard under paragraph 22(2)(b) of Schedule 9 while paragraph 26 of Schedule 10 applied, and a disregard of income tax actually paid on the income from the tenants under paragraph 1 of Schedule 9.
17. On the fourth point, the eligible interest, Mr Cooper relied on the precise words of paragraph 7(3) of Schedule 3 to the Income Support Regulations. The mortgage loan, so far as expended on , was used to acquire it for the claimant. If the claimant granted a life interest in to his mother, that was not an application of the proceeds of the loan. It would also be exceptionally difficult to work out what the value of the claimant's mother's life interest might be, once the difficult legal question of the nature of her interest was worked out. The existence of a market for such interests was doubtful. The argument for the claimant would require adjudication officers to go beyond the limits of workability and practicability.
Directions to the new appeal tribunal
18. There must be a complete rehearing of the appeal, at which all issues of fact will be open on the evidence presented to the new appeal tribunal. I direct the new appeal tribunal to apply the legal principles set out in the following paragraphs. I incorporate the explanation of my reasoning on the many difficult legal issues raised by the appeal in this part of my decision, in order to avoid repetition and to make clear the principles which must be applied. More specific directions to the new appeal tribunal are to be found in paragraphs 19, 20, 22, 23, 24, 34 and 35.
(a) The period in issue
19. The new appeal tribunal must first determine the period in issue before it. The overwhelming weight of the authorities is that that period will extend from the date of claim, 21 January 1994, down to the date on which the new appeal tribunal makes its decision, unless some circumstance has operated to terminate the running of the claim at some earlier date. That approach has been confirmed very recently by the Tribunals of Commissioners in CIS/391/1992, CIS/417/1992, CIS/85/1992, CSIS/28/1992 and CSIS/40/1992, but it is also based on the decision of the Tribunal of Commissioners in R(S) 1/83. Paragraph 11 of that decision holds that a new claim submitted during a period when the original claim is under appeal does not automatically terminate the running of the original claim, but includes among the circumstances which may indicate such a termination the making of an unchallenged award by an adjudication officer under the new claim before the original claim is finally disposed of. Thus, in the present case, any failure by the claimant to sign on on particular days would not indicate that the running of the original claim had terminated. It appears that there was no new claim made on 12 April 1991 and that the award of income support from 6 April 1991 was made on a review which by virtue of section 104(3B)of the Social Security Act 1975 was of no effect. If so, that clearly did not terminate the running of the original claim. Even if there was a new claim which led to an award of income support, that award was not unchallenged, because the claimant disputed the allowance of eligible interest, and so would not necessarily terminate the running of the original claim. However, an express termination or withdrawal of a claim by the claimant would terminate the running of the claim. The new appeal tribunal must investigate whether or not such an express termination occurred in May 1992 in the course of determining when the period in issue before it ends.
(b) Capital disregards
20. There is no dispute that the capital value of is to be disregarded as it is the dwelling occupied as the claimant's home (Income Support Regulations, Schedule 10, paragraph 1) and that the capital value of is to be disregarded as it is occupied by a relative of the claimant aged over 60 (Income Support Regulations, Schedule 10, paragraph 4). The status of is in issue. Unless and until the decision of the Tribunal of Commissioners in CIS/85/1992 is reversed by a higher court, the new appeal tribunal must apply that decision and act on the basis that a property which is subject to a tenancy (including an assured shorthold tenancy) is, for the duration of the tenancy, to be disregarded as a reversionary interest (Income Support Regulations, Schedule 10, paragraph 5). I accept, for the reasons put forward in the adjudication officer's submission dated 30 July 1993, that that principle applies where the property subject to the tenancy is leasehold as well as where the property is freehold. The decision in CIS/85/1992 referred expressly only to a freehold subject to a lease or tenancy being a reversionary interest. The basis of the conclusion in CIS/85/1992 was that the words "reversionary interest" should be given their ordinary natural meaning or their ordinary legal meaning. That meaning clearly covers a leasehold interest subject to a sub-tenancy or sub-lease. That is shown by the citation made in that case by the amicus curiae (whose reasoning was accepted by the Tribunal of Commissioners) from Jowett's Dictionary of English Law (2nd edition, 1977), Volume 2, page 1575, indicating that the word "reversion"
"is also intended to mean the freehold or leasehold reversion to a lease or term of years absolute in which case there is an estate in possession of the rents and profits as well as in the freehold or leasehold reversion, which together may form an interest in the legal estate subject to the term."
I do not think that further support of such a basic point needs to be cited. In considering the amount of the claimant's capital throughout the period in issue, the new appeal tribunal must consider paragraph 5 of Schedule 10 as well as paragraph 26 of Schedule 10 (taking reasonable steps to dispose of premises) and any other paragraph which appears relevant in the circumstances. It will be necessary for the new appeal tribunal to identify separately the weeks covered by each disregard. It appears that the tenants who were in occupation at the date of claim terminated their tenancy in July 1991 (because had been put up for sale) and that there was a letting to new tenants in October 1992. The new appeal tribunal must make findings of fact as to the dates of those events and on the circumstances relevant to the terms of the disregards in paragraphs 5 and 26 (for instance the nature of the steps which the claimant was taking to dispose of the premises). If the capital value of is disregarded throughout the period in issue, then there is no need to calculate its value. If it is not disregarded for one or more weeks, then the new appeal tribunal must make the appropriate findings as to valuation, although since there appears to be no dispute that the value is well over £8,000 and for at the least some of the period in issue the claimant had other capital in the form of savings, that need not be a difficult task. The new appeal tribunal must then apply section 22(6) of the Social Security Act 1986 (section 134(1) of the Social Security Contributions and Benefits Act 1992) and regulation 45 of the Income Support Regulations.
(c) The treatment of rental income
21. In relation to any week in which entitlement to income support is not completely excluded by the operation of the £8,000 capital limit, the new appeal tribunal must consider the effect of the rental income, apparently agreed, at least up to July 1991, to have been £433 per month before expenses, from the tenants of for the period in which that income was received. The first question is whether that income is to be treated as income or capital. In the absence of some specific statutory provision it would clearly be income. Paragraph 22 of Schedule 9 to the Income Support Regulations provided as at the date of claim that the following income other than earnings is disregarded as such income:
"(1) Any income derived from capital to which the claimant is or is treated under regulation 52 (capital jointly held) as beneficially entitled but, subject to sub-paragraph (2), not income derived from capital disregarded under paragraph 1, 2, 4, 6 12 or 25 to 28 of Schedule 10.
(2) Income derived from capital disregarded under paragraph 2 4 or 25 to 28 of Schedule 10 but only to the extent of any mortgage repayments and payments of rates made in respect of the dwelling or premises in the period during which the income accrued."
Paragraph 22(2) has been amended with effect from two dates in April 1993 to make express provision for council tax and water charges. Regulation 48(4) of the Income Support Regulations provides:
"(4) Except any income derived from capital disregarded under paragraph 1, 2, 4, 6 12 or 25 to 28 of Schedule 10, any income derived from capital shall be treated as capital but only from the date it is normally due to be credited to the claimant's account."
Thus, if one looks solely at paragraph 5 of Schedule 10 to the Income Support Regulations, the result, as determined in paragraph 36 of the decision of the Tribunal of Commissioners in CIS/85/1992, is that the income derived from the reversionary interest (ie from the letting of the premises) must be disregarded as income other than earnings and treated as capital. However, if one looks solely at paragraph 26 of Schedule 10, the income derived from the premises which are up for sale is only to be disregarded as income other than earnings to the extent allowed by paragraph 22(2) of Schedule 9 and is not to be treated as capital under regulation 48(4). It seems to be very likely that the new appeal tribunal will find that there are weeks in the period in issue in which the conditions of both paragraph 5 and paragraph 26 of Schedule 10 are met. That does not matter for the purposes of the disregarding of capital. How does it affect the application of paragraph 22 of Schedule 9 and regulation 48(4)?
22. I consider that no answer can be found within Schedule 10 to the Income Support Regulations or regulation 46(2), which provides that "any capital, where applicable, specified in Schedule 10" is to be disregarded. Those provisions are simply not concerned to establish any order of priority in the application of different paragraphs of Schedule 10. I agree with Mr Cooper that where the conditions of more than one paragraph of Schedule 10 are met in the same week, all the relevant paragraphs are applicable. However, that is only for the purpose of calculating capital. It is still necessary to consider the proper interpretation of, paragraph 21 of Schedule 9 and regulation 48(4). The problem seems to arise because the draftsman of the Regulations did not contemplate that premises subject to a tenancy could fall within paragraph 5 of Schedule 10. There do not appear to be any provisions in Schedule 10 apart from paragraph 5 and those listed in paragraph 22(1) of Schedule 9 and regulation 48(4) which could apply to premises. The draftsman presumably thought that an overlap of the kind identified in the present case, and in CIS/240/1992 which was heard at the same time, could not happen, and that any income-producing capital asset which was disregarded under one of the paragraphs listed could not fall within any other provision of Schedule 10. I consider that paragraph 22 of Schedule 9 and regulation 48(4) must be considered in combination, as having the object of assigning any income derived from capital to the alternative categories of income and capital. And the general rule is that such income is to be treated as capital and not as income. Therefore, although the issue is very evenly balanced, I have not been able to accept Mr Cooper's straightforward submission that the plain words of paragraph 22 of Schedule 9 and regulation 48 require that, if in any week one of the listed paragraphs of Schedule 10 is applicable, the exception is triggered. That would give too much prominence to the exception in comparison to the general rule. I have concluded that if the capital from which the income is derived falls within the general rule (ie it is not disregarded at all or it is disregarded under a provision of Schedule 10 other than one of the paragraphs listed) then the income should be treated as capital. The effect is that the exception (to treat the income as income) applies only where the capital from which the income is derived is disregarded under one or more of the provisions listed in paragraph 22 of Schedule 9 and regulation 48(4) and is not disregarded under any other paragraph of Schedule 10. I consider that the status of a payment as income or capital must be be determined on the date on which the payment is treated as paid by virtue of regulation 31 of the Income Support Regulations. In the present case, I direct the new appeal tribunal to treat as capital any income derived from paid in a week during which paragraph 5 of Schedule 10 applies, regardless of whether paragraph 26 or any other paragraph of Schedule 10 also applies in that week.
23. At the oral hearing before me the representatives were agreed that the questions of whether was a business asset and whether the claimant was engaged in the business of letting as a self-employed earner were not really live. I accept that approach, since the claimant has never asserted that he was in business on a self-employed basis and the case-law, in particular R(FC) 2/92, suggests that in most circumstances the letting of a single house will not be regarded as a business. Therefore the new appeal tribunal need not consider this issue unless an argument on it is specifically put forward by one of the parties at the rehearing. It is better that I should not express any views' on the precise way in which the regulations work when a claimant does have income from the letting of property as a business. Full argument on the difficulties would be needed before a final view could be expressed.
24. Since the claimant certainly had savings of £2,000 at the date of claim, the addition to that figure of payments from the tenants of might bring the amount of his capital close to or above the level of £3,000, at which it would be deemed to produce a tariff income under regulation 53 of the Income Support Regulations. Therefore, the new appeal tribunal must deal carefully with the amounts of capital which the claimant is treated as possessing and for what periods. If a payment of income derived from capital is treated as income it will be taken into account from the date on which it is treated as paid under regulation 31 of the Income Support Regulations for a period equal in length to the period to which that payment of income relates (regulation 29). Thus a payment of a month's rent would normally be taken into account as income from the beginning of the benefit week in which it was due to be paid for a period of a month. I consider that the effect of regulation 48(4) of the Income Support Regulations is to treat a payment of income as capital for a period of the same length as that for which it would have been taken into account as income. Regulation 48(4) itself defines the starting point of its operation as the date on which the payment of income is normally due to be credited to the claimant's account, without any reference to benefit weeks. Thus a payment of a month's rent which is treated as capital under regulation 48(4) would be treated as capital for a month from the date when it is due to be credited to the claimant. But beyond that period regulation 48(4) ceases to have effect. In the case of income treated as income, at the end of the period identified by regulations 29 and 31 any amount remaining out of that income will form part of the claimant's capital (CIS/654/1991, to be reported as R(IS) 3/93). If all of the income has been spent during the period to which it was attributed, the claimant will have no actual capital stemming from that income, but may have notional capital if it is shown that he has deprived himself of a resource for the purpose of securing entitlement to or increasing the amount of income support (although there is a difficult question as to whether regulation 42(1) of the Income Support Regulations (deprivation of income) or regulation 51(1) (deprivation of capital) is appropriate). If income has been treated as capital under regulation 48(4), then any amounts spent during the period identified above cannot form part of the claimant's actual capital after the end of the period, but that is subject to the possibility of notional capital calculated under regulation 51(1). The effect of regulation 48(4) is that the claimant has actual, not notional, capital for the period identified, so that the operation of regulation 51(1) is not excluded by regulation 51(7). Any payments made to meet debts which are immediately payable cannot be said to have been made for the purpose of securing entitlement to or increasing the amount of income support (R(IS) 12/91 ). That principle is to be applied by the new appeal tribunal in considering whether the claimant. is to be treated as still possessing any capital spent on items related to . It is clearly established that saved-up income only metamorphoses into capital after taking account of all relevant debts, including in particular tax liabilities (R(SB) 2/83, paragraph 6, R(SB) 35/83 and R(IS) 3/93). However, where regulation 48(4) has effected a statutory metamorphosis I consider (although I have not had submissions directed to the specific point) that at the end of the period for which regulation 48(4) operates any amount remaining unspent out of the payment in question remains capital. It does not change into income and then immediately back into capital. If there are still relevant debts to be met out of the remaining amount, then they do not reduce the amount of capital unless they are secured on the capital itself (regulation 49(a)(ii) of the Income Support Regulations).
25. That leads to the question of the amount of income which is to be treated as capital under regulation 48(4). Is it the amount paid by the tenants or is it what remains after deducting the expenses necessarily incurred in gaining that income? The starting point is regulation 46(1) of the Income Support Regulations, which provides:
"(1) For the purposes of Part II of the [Social Security Act 1986 (Social Security Contributions and Benefits Act 1992, Part VII)] as it applies to income support, the capital of a claimant to be taken into account shall, subject to paragraph (2), be the whole of his capital calculated in accordance with this Part and any income treated as capital under regulation 48 (income treated as capital)."
So far as the calculation of capital is concerned, the relevant provisions are regulations 49 and 50, which make the test the market or surrender value of the capital (except for National Savings certificates). That is not an appropriate test for a sum which is "really" income. Thus the need for the reference to regulation 48. The amount of capital to be taken into account under regulation 48(4) is therefore controlled by that provision, and the question becomes what amount of income is subject to that provision. The relevant provisions relating to income which is not derived from employment or self-employment are paragraphs (1) and (2) of regulation 40 of the Income Support Regulations, which provide:
"(1) For the purposes of regulation 29 (calculation of income other than earnings) the income of a claimant which does not consist of earnings to be taken into account shall, subject to paragraphs (2) to (3A), be his gross income and any capital treated as income under regulations 41 and 44 (capital treated as income and modifications in respect of children and young persons).
(2) There shall be disregarded from the calculation of a claimant's gross income under paragraph (1), any sum, where applicable, specified in Schedule 9."
I accept the view put forward in the adjudication officer's submission dated 30 July 1993 that, although regulation 40(1) is expressed only to operate for the purposes of regulation 29, consistency requires that the amount of income other than earnings on which regulation 48(4) operates is calculated in the same way as if it were being treated as income. Thus, it must be asked what the claimant's "gross income" is.
26. On the question of the proper interpretation of the phrase "gross income" in regulation 40 (1) , I accept Mr Cooper's submissions at the oral hearing. It may well be, as Mr Isaac suggested, that in the end the resolution of this question will make no practical difference to the outcome of this case. However, in view of the possible importance of the issue in this case, and its central importance in other cases, I should deal with the question in detail.
27. I start with the regulations looked at free of any previous authority. The ordinary meaning of "gross" is expressed in the definition in the Shorter Oxford Dictionary: "entire, total, whole...opposite of net". Regulation 46(2) of the Income support Regulations provides for the disregard as income of sums specified in Schedule 9. Schedule 9 has several paragraphs providing for the disregard of sums which represent the payment out by the claimant of expenses related to the gaining of the income concerned. Thus, under paragraph 1 the amount paid by way of tax on income is disregarded. Under paragraphs 4 and 4A, half of contributions made by a claimant to an occupational or personal pension scheme in relation to payments of sickness or maternity pay is disregarded (as well as social security contributions deducted by the employer). Under paragraph 19, where a person makes certain payments to the claimant for accommodation in the claimant's home, £4 per week is disregarded, or £12.60 if the payment includes an amount for heating. Under paragraph 20, if the claimant provides board and lodging accommodation in his home, the first £20 per week of any payment, plus 50% of the excess over £20, is disregarded. Under paragraph 22(2), amounts of mortgage repayments and payments of water charges/rates and council tax/rates are disregarded from the income received from certain kinds of premises. Under paragraph 24, if a payment of income is made in a foreign currency, any banking charge or commission payable in converting it into sterling is disregarded. In my view, the extent and variety of those disregards, in combination with the ordinary meaning of "gross income" indicates that the full amount of any payment made by way of income other than earnings is to be taken into account, without any deduction for the necessary expenses of gaining that income, except to the extent expressly allowed by Schedule 9. The extent and variety of provision in Schedule 9 related to payments of expenses by the claimant would not have been necessary if "gross income" meant "income after deducting the necessary expenses of gaining the income". Indeed, if "gross income" did have that meaning there would apparently be a double deduction of expenses in some cases. I am satisfied that "gross income" has the meaning I have set out if the regulations are looked at on their own. Does the case-law in existence at the date that the Income Support Regulations came into operation indicate that some other meaning might have been intended?
28. A number of Commissioners' decisions relating to the supplementary benefit scheme had discussed the nature of rent from premises as income. The relevant provision was regulation 11(2)(n) of the Supplementary Benefit (Resources) Regulations 1981, which provided that there "shall be treated as income and taken into account in full" income from certain kinds of capital. In R(SB) 7/83, the Commissioner accepted that "taken into account in full" meant, in the context of the regulations as a whole, not benefiting from a fixed disregard under the regulations and that no sums could be deducted from payments of income other than those specifically prescribed. Nonetheless, he suggested that the use of the word "income" might involve the deduction from "gross" income of reasonable expenses incurred in its collection. He restricted that possibility in the case of rent to expenses in their nature payable out of the rent, such as an estate agent's commission, but not the cost of repairs to the premises let or mortgage payments on the premises. In R(SB) 20/84, the Commissioner held in paragraph 14 that rent was not to be regarded as pure income and that if land was let on terms that the landlord paid the rates the amount of the rates was a permissible deduction from the rent. The Commissioner did not determine whether or not anything else was deductible on the same principle. The amount of rates payable was to be deducted before the fixed disregard of £4 was applied. Those two decisions are interesting, but concern the construction to be given to the word "income" on its own, given the conclusion that "taken into account in full" meant without a fixed disregard. I conclude that they do not offer a guide to the construction of the phrase "gross income", especially in a statutory context which is significantly different, except possibly to indicate that there is some degree of uncertainty about the meaning of the phrase.
29. The most influential decision prior to the drafting of the legislation coming into force in 1988 was that of the Court of Appeal in Parsons v Hogg  2 All ER 897 (also reported as an appendix to R(FIS) 4/85). It was contended that in calculating income for family income supplement purposes there should be deducted from the taxable earnings of the claimant's husband necessary expenses such as travel, telephone, secretarial assistance, uniform, postage etc. Section 4(1) of the Family Income Supplements Act 1970 made entitlement depend on the normal gross income of the claimant's family, but normal gross income was to be calculated as regulations prescribed. The relevant regulation was regulation 2(3) of the Family Income Supplements (General) Regulations 1980 ("the Family Income Supplements Regulations"), which provided:
"(3) In so far as a person's earnings from any gainful occupation comprise salary, wages or fees related to a fixed period, the gross amount thereof shall be taken into account; and in so far as a person's earnings from any gainful occupation do not comprise salary, wages or fees related to a fixed period, the net profit derived from that occupation shall be taken into account."
The Commissioner in R(FIS) 4/85 held that the word "gross" related to "earnings" and in that context meant before the deduction of tax but after the deduction of the expenses which have to be expended to make the earnings and are allowable in arriving at the taxable sum. That removed the anomaly between the treatment of claimants who came within the first part of regulation 2(3) and those who came within the second part. In the Court of Appeal, Slade LJ agreed with the Commissioner that the word "gross" in relation to the word "income" is capable of different meanings according to context, but the critical question was what the regulations provided. Slade LJ went on to hold that a primary purpose of the addition of the word "gross" to "earnings" was to ensure that no account should be taken of any tax deducted or deductible from the earnings. Then "earnings" referred to receipts after payment of the expenses wholly and necessarily incurred in the course of winning those earnings, rather than, as it might in other contexts, to the remuneration actually received by a person. Because the word "earnings" was equivocal, the statutory purpose of the formula for ascertaining the amount of a person's earnings could be considered, which was to assist in ascertaining the resources of the family to be taken into account for the purposes of the family income supplement legislation. In that light, it was inherently improbable that the legislature would have intended that a sum that did not form part of the resources available to the family should be treated as part of the family's income. In addition, there was no reason in logic or justice why there should be a harsh discrimination between the two categories of earner identified in regulation 2(3), Griffiths LJ stressed that it must have been the intention of the legislature to deal evenhandedly with the employed and the self-employed.
30. The Court of Appeal's decision would certainly indicate that the phrase "gross income" is an equivocal one, since the word "income" could carry the same dichotomy of meanings as "earnings". The use of those words on their own in regulation 40(1) of the Income Support Regulations would not be conclusive that the full amount of a payment of income, without deduction of expenses, was to be taken into account, especially if a presumed intention that a claimant for income support should not be fixed with resources which are not actually available to him could be invoked. But in the case of regulation 40(1), the desirability of evenhandedness between different categories of earner is not a factor. The context is of the treatment of income other than earnings, and I consider that there are so many differences between the varieties of different forms of income on the one hand and earnings from employment or self-employment on the other that there is no basis for presuming that there should be a similar approach to the deduction of expenses. In addition, the immediate statutory context is not the same. In the case of the Family Income Supplements Regulations, there was no provision for the disregarding of any payments of earnings in whole or in part. In the case of regulation 40(2) of the Income Support Regulations, there are the disregards in Schedule 9 set out in paragraph 26 above. In my judgment, the reasoning of the Court of Appeal in Parsons v Hogg establishes only that the words "gross income" are equivocal on their own and does not establish that the use of those words by the legislature, in the light of that decision, must be taken to have a particular meaning. The statutory context of regulation 40(1) is sufficiently clear to exclude the meaning that necessary expenses are to be deducted from receipts of income, given that the persuasive factors the other way are not as strong as in the case of regulation 2(3) of the Family Income Supplements Regulations.
31. Is that conclusion consistent with binding or persuasive authority on the interpretation of the legislation in force from April 1988? In R(FC) 1/90 and in CIS/317/1992, to be reported as R(IS) 16/93, Commissioners held that the reasoning in Parsons v Hogg applied to the ascertainment of the earnings of a claimant under, respectively, regulation 20 of the Family Credit (General) Regulations 1987 and regulation 36 of the Income Support Regulations. The correctness of those decisions need not be questioned in the present case, because in my judgment they do not bear on the problem before me. They were concerned with the earnings of employed earners and the statutory context is sufficiently different from the context of the provisions relating to income other than earnings that there is no presumption that there should be a uniform approach to the deduction of necessary expenses. For the same reason, I do not need to consider the effect of the decisions in R(IS) 6/92 and CIS/77/1993, in which the Commissioner dealt with attendance allowances paid to local authority councillors (within the category of earnings from employment) in a way which appeared to leave no room for the application of the Parsons v Hogg principle as accepted in R(FC) 1/90 and CIS/317/1992.
32. The only other Commissioners' decisions cited to me on this issue were CIS/25/1989 and CIS/85/1992. The decision in CIS/25/1989 is directly in point. There the claimant received income of £21.60 per month from the Ideal Benefit Society. He was only able to receive that payment under a sickness scheme while he kept up his annual subscription to the Society of £60. The Commissioner rejected the claimant's main argument that the income was "income derived from capital", to be treated as capital under regulation 48(4) of the Income Support Regulations, but held that the monthly equivalent of the annual subscription should be deducted from the monthly payment in order to produce the amount of income to be taken into account in regulation 40(1) of the Income Support Regulations. He said, in paragraph 11:
"The claimant was not allowed by the social security appeal tribunal to deduct the £60 per annum from the £21.60 monthly payments by the Benefit Society on the ground that the use of the word 'gross' in the regulation meant that such sum was not deductible. However, in reported Commissioner's Decision R(FIS) 4/85 (subsequently affirmed by the Court of Appeal in the case of Chief Adjudication Officer v Hogg, reported as Appendix to R(FIS) 4/85), the learned Commissioner accepted a submission that, despite the use of the expression 'gross' in relation to income for family income supplement purposes, 'in the present context gross means before the deduction of tax but after deduction of the expenses that are allowable in arriving at the taxable sum' (paragraph 12 of R(FIS) 4/85). In the present case, the claimant would not be able to receive the £21.60 monthly sickness benefit unless he expended the sum of £60 per annum in payment of subscription or premium to the Ideal Benefit Society. The payment of the £60 per annum was a condition precedent to obtaining the £21.60 per month. Consequently its equivalent of £5 per month is in my view deductible from the £21.60 monthly to be taken into account as income for income support purposes."
The are great attractions in the result reached by the Commissioner in that case, but I regret that I cannot accept its legal basis. In my view, the decision gives insufficient weight to the fact that Parsons v Hogg and R(FIS) 4/85 were concerned with earnings from employment and to the very different statutory context of regulation 40(1). The Commissioner appears not to have had the advantage of the full argument which I have heard in the present case. Consequently, I decline to follow CIS/25/1989.
33. In CIS/85/1992 it was held that the rental income from tenanted property was to be treated as capital rather than income, as had been done by the adjudication officer. The Tribunal of Commissioners said this as part of its directions to the new appeal tribunal in paragraph 37 of its decision:
"According to the original adjudication officer's submission to the appeal tribunal, the claimant had rents of £180 per week from tenants of which £70 per week was treated by the adjudication officer as income. She had £5,110.73 capital. Presumably the adjudication officer would accept that, on these figures, the amount to be treated as the claimant's capital when received would be £70 and not £180 per week. If it is intended to argue the contrary before the appeal tribunal, there should be a written submission by the adjudication officer, after taking legal advice, as to why the sum of rent to be included in the calculation is gross instead of, as accepted when treated as actual income, net."
All that that passage decides in terms is that, subject to any contrary argument to be put forward by the adjudication officer, the same amount should be treated as capital under regulation 48(4) of the Income Support Regulations as would have been taken into account as income. That is in line with the conclusion which I have expressed in paragraph 24 above. It might be said that the passage was based on the assumption that the amount of rental income to be taken into account should be net of expenses rather than gross, but that merely reflects the approach actually taken initially by the adjudication officer to the treatment of the rental income as income. The Tribunal of Commissioners cannot be taken to have expressed any concluded view on the question.
34. There is no other authority known to me which is contrary to the interpretation of "gross income" in regulation 40 (1) which I have set out in paragraph 26 above. I direct the new appeal tribunal to apply that interpretation. The result is that the claimant's gross income from the tenants of 46 Elderwood Place, to be treated as capital by virtue of regulation 48(4), was £433 per month up to the termination of the tenancy in July 1991. If the new appeal tribunal deals with a period after the re-letting of the property in October 1992, it must apply a similar approach to whatever amount of rent was paid under that tenancy. The new appeal tribunal must apply the principles set out in paragraph 24 in determining how much actual and notional capital the claimant had week by week in the period in issue. That may involve some detailed investigation of the amounts held by the claimant in bank or other accounts and of the purpose of payments made out of capital or income, unless the amount of actual and notional capital is on any footing is well below the level at which it could have any effect on his entitlement to income support.
(d) Eligible interest
35. The new appeal tribunal should make findings of fact on the precise and complete circumstances in which the claimant acquired his mother's half-share in , and in particular on what provision, if any, his mother required in return for the transfer of that half-share in addition to the payment of £50,000 and on the exact nature of the interest, if any, which his mother has in and how it was created. The definition of eligible interest in paragraph 7(3) of Schedule 3 must be considered, ie "the amount of interest on a loan...taken out to defray money applied for the purpose of... (a) acquiring an interest in the dwelling occupied as the home" or paying off another qualifying loan. Where a loan is applied only in part for a purpose specified in sub-paragraph (3) the interest on that part of the loan is allowed as eligible interest (paragraph 7(5)). Thus the question is the extent to which the mortgage loan of £125,000 was used to defray money applied for the purpose of acquiring an interest in . I agree with Mr Isaac to the extent that money may be applied for the purpose of acquiring an interest in a dwelling although it is not applied directly to paying the purchase price of the interest. It is accepted by the adjudication officer that the meeting of legal and other necessary expenses of acquiring the interest comes within paragraph 7(3). I can see no reason why, if for instance a vendor requires payment for the interest to be made partly or wholly in gold bars or cases of wine, the expenditure of money to acquire those items could not be said to be for the purpose of acquiring the interest in the dwelling. The same reasoning would apply if the vendor required payment to be made partly or wholly by being granted an interest in some other property. The expenditure of money to acquire that interest, to be transferred to the vendor, could be said to be for the purpose of acquiring the interest in the dwelling occupied as the home. However, I agree with Mr Cooper that if in the present case the situation was that the claimant bought so that he could grant his mother a life interest in that property in fulfilment of her requirement to be provided with a home for life in return for transferring the half-share in , that situation does not come within paragraph 7(3). The money was applied to purchase the freehold interest in . That may have been an essential precondition to the claimant's being able to grant a life interest in to his mother (if in fact he did so), but the situation is different from that of applying money directly to purchase the goods or the interest in property which are to be transferred to a vendor as part of the consideration for transferring an interest in the dwelling occupied as the home. Mr Isaac's argument proves too much. If the expenditure on purchasing was for the purpose of acquiring the interest in 104a Christian Fields, I can see no basis in paragraph 7(3) for restricting the amount of the expenditure within that purpose to the value of the mother's life interest, rather than to the entire purchase price (plus necessary legal and other expenses) of the freehold interest. If the purchase of the freehold interest was a necessary part of the purchase of the half-share in , then the whole cost of that purchase would be within the purpose. It seems to me an inherently unlikely conclusion that interest. on the proportion of a loan used for such a purpose should be eligible interest, even taking account of the possibility that there might be some restriction under paragraph 10 of Schedule 3 on the amount of eligible interest to be met as a housing cost. I consider that money can only be said to be applied for the purpose of acquiring an interest in the dwelling occupied as the home when it is expended on paying the purchase price directly, meeting the necessary expenses of the purchase or on buying goods or some interest in property which are themselves to form part of the consideration for the transfer of the interest in the dwelling occupied as the home. I direct the new appeal tribunal to apply that principle to the facts as it finds them in the present case.
36. The claimant's appeal is allowed.
(Signed) J Mesher
Date: 28 June 1994