IN THE UPPER TRIBUNAL	Case No.CIS/3434/2011 
ADMINISTRATIVE APPEALS CHAMBER

Before 

Decision:  The appeal is allowed.  I set aside the decision of the tribunal and remit the case to be reheard by a new tribunal in accordance with the directions given below.

REASONS FOR DECISION

1.	This appeal is brought with the permission of a First-tier Tribunal judge and is supported by the Secretary of State.

2.	An Aston Martin car was purchased by the claimant on 11 July 2008 with a view to starting a classic car rental business.  The claimant’s health and the economic crisis of September 2008 led to the project being abandoned, and the claimant subsequently claimed income support in December 2008 while still owning the car.  The principal question before the tribunal was whether the car was capital, the value of which had to be taken into account in determining the claimant’s entitlement to income support.  The claimant contended that it was a personal possession to be disregarded.  The tribunal found that it was neither a personal possession nor a business asset but an investment to be taken into account in calculating the claimant’s capital.

3.	In coming to this conclusion the tribunal overlooked the decision of Mr. Commissioner Jacobs (as he then was) in R(H) 7/08, where he concluded that, for the reasons given there “personal possessions” means any physical assets other than land and assets used for business purposes, and that “personal” distinguished between things held for personal and for business use (see paragraphs 53 and 54 of that decision).  That decision related to housing benefit, but the provisions of paragraphs 6 and 10 of Schedule 10 to the Income Support (General) Regulations 1987 are in the same terms as paragraphs 8 and 12 of the Housing Benefit Regulations 2006.

Was the Aston Martin a personal possession or a business asset?
4.	In the light of that decision, the decision of the tribunal was in error of law and must be set aside.  Either the Aston Martin was a business asset within paragraph 6 of Schedule 10 to the Income Support Regulations or it was a personal possession within paragraph 10 of that Schedule.  In that context I note and accept the finding of the tribunal that the Aston Martin was not acquired with the intention of reducing the claimant’s capital in order to secure entitlement to income support or to increase the amount of that benefit.  

5.	I proceed on the basis that the claimant genuinely wished to start a business which would generate income and lead to his not needing to claim income support in the future.  Given the state of his health and other issues, that wish, and the way in which he sought to give effect to it, may have been misguided.  As a result of health problems and possibly also the effect on financing of the international financial crisis in September 2008, it had to be abandoned.  The claimant contends that the Aston Martin had on that basis to be treated in and after December 2008 as a personal possession and disregarded entirely in assessing his capital for income support purposes.  As the tribunal judge noted in giving permission to appeal, if instead the claimant had purchased a JCB for a new business which had never started, it would be odd to have to treat it as a personal possession if it remained unsold when income support was claimed.

6.	Paragraph 6 of Schedule 10 to the Income Support (General) Regulations 1987 provides as follows:

(1)	The assets of any business owned in whole or in part by the claimant and for the purposes of which he is engaged as a self-employed earner or, if he has ceased to be so engaged, for such period as may be reasonable in the circumstances to allow for disposal of any such asset.
(2)	The assets of any business owned in whole or in part by the claimant where –
(a)	he is not engaged as a self-employed earner in that business by reason of some disease or bodily or mental disablement; but
(b)	he intends to become engaged (or, as the case may be, re-engaged) as a self-employed earner in that business as soon as he recovers or is able to become engaged, or re-engaged, in that business;
for a period of 26 weeks from the date on which the claim for income support is made, or is treated as made, or, if it is unreasonable to expect him to become engaged or re-engaged in that business within that period for such longer period as is reasonable in the circumstances to enable him to become so engaged or re-engaged.
(3)	In the case of a person who is receiving assistance under the self-employment route, the assets acquired by that person for the purpose of establishing or carrying on the commercial activity in respect of which such assistance is being received.
(4)	In the case of a person who has ceased carrying on the commercial activity in respect of which assistance was received as specified in sub-paragraph (3), the assets relating to that activity for such period as may be reasonable in the circumstances to allow for disposal of any such asset.

7.	It is plain that in some circumstances at least, assets acquired for the purposes of a business which has not yet started are treated as business assets, the value of which is to be ignored either entirely or for a limited period.  This is clear under paragraph 6(3) which refers to assets acquired to establish the commercial activity in respect of which the relevant assistance is being received.  They fall within paragraph 6 even though the business has not yet been established or the commercial activity referred to is not yet being carried on.  So too, paragraph 6(2) refers to assets of a business owned in whole or in part by the claimant where he is not engaged as a self-employed earner because of illness but intends to become so engaged or re-engaged when he recovers.  The reference to engagement or re-engagement clearly contemplates that he may not previously have engaged in such a business.

8.	If the claimant had acquired assets under the self-employment route (as defined in regulation 2(1) of the Income Support (General) Regulations 1987) to establish a commercial activity and then ceased carrying on that activity, the assets are to be ignored only for such time as may be reasonable to allow for their disposal (paragraph 6(4) of Schedule 10).  It is plain that those assets are not personal possessions.  I find it difficult to see why similar assets, for example a JCB which was acquired to start up a new business, should be treated as a personal possession and be entirely exempt just because the claimant was not receiving assistance under the self-employment route. So too, I find it difficult to see why, if the JCB was acquired when the claimant intended to become engaged as a self-employed earner in a business should have only the limited exemption under paragraph 6(2) of Schedule 10, while if it was acquired to inject into a company to be formed to use as a business asset in a business to be run by the claimant as the director of that company, it should be a personal possession until transferred to that company.

9.	R(H) 7/08 was a case concerned with a caravan used by the claimant and his family which had no business use at all.  It was not concerned with the scope of the expression “business assets” used in paragraph 53 of the decision, or with the boundary between things held for personal use and those held for business use in paragraph 54.  It simply decided that there was no room for any third category of physical assets other than land.  In this case, it is plain from the claimant’s own evidence that the Aston Martin was acquired for business use, in the same way as a JCB might have been acquired.  That business use had failed both because of the claimant’s illness and, he stated, because of the financial crisis.  It may have been the hope of the claimant when purchasing it that it could be sold at a profit if things did not work out, but I am satisfied on his own evidence that it was bought for the business that he wanted to establish in order to cease to be dependent on income support.  It was not therefore a personal possession, and it was only to be disregarded for income support purposes within the limits imposed by paragraph 6 of Schedule 10.

10.	I have some difficulty in the present case in seeing how the claimant can be regarded as engaged even in the initial set up stages of the business as a self-employed earner, especially given his apparent intention to set up a company, but it appears to me that this issue was never properly investigated by the tribunal in the light of its findings that the car was an investment.  The tribunal will need to investigate and make findings as to the claimant’s business plan and proposals for a company bearing in mind the possibility that the claimant was acting as a self-employed earner in setting up and starting the business even though until it was up and running he would make no money from it and that at some early stage it was to be transferred to a limited company.

11.	If the tribunal concludes that the Aston Martin did fall within a temporary disregard, then it will have to determine whether that disregard applied when income support was applied for, and if so, then whether it continued to apply thereafter up to the time of the decision maker’s decision in March 2009.  So long as the disregard applied then it would seem that the claimant did not have sufficient capital to affect his entitlement to income support.  The other two cars he owned would be permanently disregarded as they were personal possessions which he had owned for some time, and at least on the evidence before me they had not become business assets although it was intended that in due course they should.

12.	If it is found that no disregard applied in relation to the Aston Martin, or that there came a time before the date of the decision maker’s decision by which the disregard expired, then the tribunal will need to value the Aston Martin in assessing the claimant’s capital.

Valuation
13.	Under regulation 49 of the Income Support (General) Regulations, the Aston Martin is to be valued at its current market value less 10 per cent for expenses, it being clear that however he sold it there would be likely to be expenses attributed to the sale.

14.	The tribunal under appeal valued it as at the date of the claimant’s claim for income support, which was 1 December 2008.  It did so by taking (1) the purchase price of the vehicle of £19.996.25, inclusive of buyer’s premium when it was bought at auction July 2008, and (2) the sale price in October 2009 of about £9000 less expenses of about £1600.  It described these figures as producing a loss of about £12,500 over 14 months.  It further accepted that because of the recession and financial crisis in September 2008 the value of the car would have dropped considerably.  It then concluded “Given that there was a drop in value of £12,500 over 14 months, the drop in value over the 5 months to 01.12.08 would give a value of approximately £15,500.”

15.	The tribunal thus found that there was a drop in value of about £4500 over about four and a half months from the purchase date of 11 July 2008, with apparently a more substantial drop in the ensuing 10 months or more until it was actually sold at some unspecified date in October 2009.  

16.	There are at least five apparent errors in this calculation.  Firstly, it fails to take account of the defects in the car which the claimant gave evidence that he only discovered after he had bought it.  If those defects did exist at the time of the July 2008 auction, then they must have served to reduce the market value of the car at that time and the sale price is no indication of its market value.  The market value cannot be increased on the basis of a sale to a person who was not aware of the defects at the time.  

17.	Secondly, the market value is what the seller could get for it gross less 10 per cent expenses, not what the purchaser had to pay for it.  Its value on this basis in July 2008, ignoring the effect of any defects, would be the hammer price at the auction less 10 per cent.  So too, the value in October 2009, if and so far as relevant, would be the hammer price obtained then less 10 per cent for expenses regardless of what the expenses actually were.  The object of the capital provisions is to ensure that if the claimant can realise assets, then, subject to capital limits, he should do so rather than rely on income support.  Where a sale of a chattel is by auction, there are nowadays buyer’s premiums added as well as seller’s commission.  A seller will normally choose this method of sale because he will get a better net price than if he sold privately.   If it were the total paid by the buyer at auction less 10 per cent that was treated as the market price, including a buyer’s premium that at some leading auction houses can be as high as 25 per cent plus VAT, in addition to a seller’s commission of 15-20 per cent, then the seller could end up being treated as having capital far beyond anything that he could hope to realise on a sale.  That does not appear to me to be the object of the regulations, and in my judgment the market value is what the claimant can expect to receive on a transaction between a willing seller and a willing buyer, but allowing only 10 per cent for any expenses on the hammer price at auction.

18.	Thirdly, having rightly found that the value would have dropped considerably as a result of the financial crisis, there would seem to be no basis for the finding that the value dropped only by £4500 by 1 December 2008, without any explanation or consideration of how the crisis continued to affect sales.  I am unable to deduce from the tribunal’s reasoning why the value would have continued to fall in this apparently linear way, rather than collapsing when finance ceased to be available and then levelling off if finance continued not to be available, or perhaps starting to increase as the immediate crisis eased.  

19.	Fourthly, the tribunal was provided with a comparator for a similar car of 1991 vintage sold on 26 November 2008 for a hammer price of £12,000 (p.200, 204) and of a 1992 vintage of the same car being sold for £11,700 on 4 December 2008 (p.204).  No explanation is given why that comparator has been ignored or what was made of it by the tribunal.  The new tribunal will need to consider and make findings in respect of these comparators.  I note that the claimant invited the tribunal to consult the auctioneer’s website.  It is not the function of the tribunal to carry out this sort of investigation.  It is for the claimant to print off, if still available, anything on the website he wishes to rely on.  It is also for the claimant, so far as he is able, to obtain and provide information as to the condition and mileage of the cars in question as well as of his own car, as it is clear that the price will be affected by a car’s age, condition and mileage.  

20.	Further, in this context, it will be for the claimant to show that this was, as at 1 December 2008, or such other date between then and the date of the decision maker’s decision as may be material if a disregard were to come its end in that period, that sale by auction was the best way of realising the market value of the car.  In this respect, I note his reliance on a supposed private sale of a low mileage car with a full service history around July 2008 at a much higher price.  I note that the claimant believed the car to have sold at around that higher price as the advertisement was not repeated, but I see no reason to assume a sale as the owner may simply have decided to keep the car if he could not get the very high price he was seeking for a car that would appear to have been in much better condition than that acquired by the claimant.

21.	Fifthly and finally, there was evidence that the claimant’s car was damaged in April 2009.  Insofar as the price realised in October 2009 was relevant, it may have been affected by the damage in April 2009, and that too should have been considered by the tribunal if it considered that price to be relevant.  Evidence will be needed by the new tribunal, if it considers the October 2009 price to be relevant, of the condition of the car at that time and anything else relevant surrounding the sale.

Other capital and notional capital
22.	The claimant accepted that he had £341315 in his bank account at 1 December 2008 but did not accept that he had any other capital.  He had received over £44,000 as an inheritance in April 2008 and it had been from this that he had purchased the Aston Martin.  He also accounted for other expenditure using these funds, but the tribunal found that there was a sum of £6,783.60 unaccounted for which it decided constituted notional capital in the absence of a satisfactory explanation of its expenditure.  As I am setting aside the decision of the tribunal and remitting the case to be reheard, it is unnecessary for me to express any view on the contention that in all the circumstances the tribunal should have adjourned to enable the claimant to explain where this money went.  I note the contentions, however, of the Secretary of State that the question was not adequately investigated and the claimant was not given a proper opportunity to deal with it, and that the First-tier Tribunal was in error of law in this respect.  

23.	The claimant will now have an adequate opportunity of explaining how this sum was spent, and of producing relevant documentation in support.  As the Secretary of State has also pointed out, citing in support R(SB) 38/85, if the claimant fails to provide a satisfactory account of the way money has been disposed of, it will be open to the tribunal to conclude that the claimant still has, in one form or another, that resource.  I would add, however, that this may well depend on the amount in question and its effect on his claim.  It is not surprising if a claimant cannot account for every penny spent, and it does not appear to me to be the natural conclusion to come to that he still possesses it, if the amount unaccounted for is small.  But if the claimant proves unable to account for most of the £6783 said to have been spent over a period of a few months in 2008, when that sum represents more than a quarter of his remaining inheritance after payment for the Aston Martin, then it would be a natural conclusion that all or most of what is unaccounted for was still retained by him in one form or another.

(signed)	Michael Mark
		Judge of the Upper Tribunal

		10 July 2012