Personal Injury Trusts – Getting Your Property in Order (post-Tribunal update)

For any regular visitors to the PFP blog page you may recall an article from 9^th February 2017 dealing with the issue of placing properties within personal injury trusts and the room for error if suitable advice is not sought. This article sets out the journey through the Tribunal appeal and the decision notice issued.

By way of background, the Claimant established a personal injury trust to take receipt of damages awarded in respect of an injury sustained in 2008. On settlement of the claim in 2014 the final damages were settled into trust by her chosen advisors, a solicitors practice specialising in personal injury claims.

The award was utilised to purchase a new property more suitable to claimant’s needs and that of her family. Her advisors recommended that the property be held as an asset of the personal injury trust to avoid its assessment in the event of future care needs.

At the time the claimant retained the former family home which was purchased by way of utilising trust funds to discharge the outstanding mortgage and repay a family member who provided the deposit funds. In this way the trust had effectively purchased the former residence from the creditors. As such it would have been appropriate to assign the former property into the personal injury trust. This vital step was overlooked.

For numerous reasons it was thought desirable to retain the former home and let it to achieve a rental income to sustain the family and provide the opportunity for capital growth.

The Claimant received rental income direct to her bank account.

Some years later, due to a breakdown in the relationship between the Claimant and her professional trustees, the claimant was referred to PFP having requested a referral from her litigation solicitors.

The Claimant was not in receipt of, nor did she qualify for, any means-tested support owing to the structure of her finances. On reviewing the circumstances it was clearly apparent that the Claimant was missing out on entitlements and that her finances should be restructured.

As a result of the former home now being retained as an assessable asset the capital value fell to be assessed against any entitlement to Council Tax Reduction and the rental income assessed against the entitlement to Tax Credits.

In an ideal world a suitable audit trail would have allowed us to assign the former home into the personal injury trust and make an application for Council Tax Reduction coupled with an uplift to Tax Credits. However, owing to the time that had elapsed, there were insufficient records available to fully assign the former home into trust.

Consequently, the trust was required to purchase a proportion of the former home for a second time effectively paying for it twice. In addition legal costs were faced to record the transfer of ownership.

Having taken the necessary steps to assign the property into the trust in what was considered the best possible way and rectify the position created by the previous advice, applications were made to the Tax Credit Office and Billing Authority to increase the level of entitlement.

The Billing Authority put forward a list of objections as to why it felt that the property could not be disregarded and, whilst it is not my intention to provide chapter and verse to the objections raised, a brief outline is appropriate.

The Billing Authority contended that owing to the property formerly being a personal asset the personal injury disregard was lost. As such it could not decide with any clarity whether the application for Council Tax Reduction failed on the basis of the value of the property exceeding the capital threshold or, if that did not apply, that the rental income should be assessed which in turn would also lead to a loss of entitlement. The Authority did not seek to clarify which of these issues caused the application for support to fail.

After a lengthy tribunal hearing the Tribunal panel issued its response and allowed the appeal from the date the former home was formally assigned to the trust via PFP. This secured the Council Tax Reduction entitlement for the claimant and, in turn, the increase in Tax Credits.

The award of Benefit for Council Tax reduction will be backdated 18 months to January 2016 and combined with the Tax Credit uplift the Claimant will receive thousands of pounds in backdated benefits and receive an additional thousand pounds a year of income. This in itself is, of course, a successful outcome for the Claimant.

Nonetheless, the impact of insufficient advice at the outset has led the Claimant to forgo two years of benefits that could not be reclaimed prior to formally rectifying the financial structure of her assets. Due to the complexity of the issues surrounding this claim being far beyond the Billing Authority’s experience or comprehension the Claimant faced 18 months of uncertainty whilst the Billing Authority struggled to reach a decision to decline the benefit application and the grounds on which it failed. Lastly, there were legal costs in relation to the assignation of the former home into trust.

All of these issues could have been easily avoided had the correct advice been provided at the outset. Furthermore, had the relationship not ended between the Claimant and her professional Trustees this issue is unlikely to have been spotted for some time, if at all; the losses of the Claimant escalating as the years passed.