Surely this is fraudulent by the solicitors?

A client has been awarded damages for personal injury. The solicitors have advised that a "personal injury trust" be set up because the funds will otherwise affect the client's entitlement to means-tested state benefits.

I'm advising the client not to go ahead with the plan. Am I right? 

Comments

More information, please

taxtroubleshooter | | Permalink

Is this what the solicitors have actually said/written, or the client's version of it? On what basis is your advice on the solicitors' advice being sought?

Phil Rees's picture

They have put it in writing and I have a copy of the letter

Phil Rees | | Permalink

I am wondering whether to report them to SOCA.

 

davidwinch's picture

Whoa there!

davidwinch | | Permalink

Phil

Just hang on a cotton-pickin' minute there cowboy! (with apologies to Deputy Dawg)

I cannot see anything illegal in putting the monies from the damages award into a trust.

However, there may well be an obligation to notify the authorities (DWP, local authority, HMRC re tax credits) of the award.  With regard to the DWP and local authority (if the client is receiving Housing Benefit or Council Tax Benefit) the award of damages may amount to a 'change of circumstances' which the client is obliged to disclose.

If the client were to dishonestly fail to notify a change of circumstances which he is required to disclose then that would be an offence - see section 111A(1A) Social Security Administration Act 1992 - and the subsequent receipt of benefits to which the client was not entitled would amount to money laundering.  At that point an obligation could arise upon you to make a report to SOCA. But, even assuming the worst, you are a long way from reaching that point.

There are questions in my mind as to whether the placing of the monies into a trust would be effective in (legitimately) allowing the client to continue to receive the benefits to which he was previously entitled.  It might be considered that the client, by placing the monies into trust, was depriving himself of income or assets - and that might result in loss of benefits for him.  I'm not going to offer an opinion on that (and neither, I suggest, should you).

I would suggest you write to your client suggesting that he asks the solicitors to advise (and get specialist technical advice from elsewhere if appropriate) on whether putting the monies into trust would (legitimately) enable him to continue to receive the benefits to which he was previously entitled.

For what its worth, the DWP are likely to be aware of the damages award in any event.

David

As Sade used to sing, is it a crime? Apparently not!

taxtroubleshooter | | Permalink

I assume that your concern arises because the proposed purpose is to preserve benefits? Historically I believe these trusts were used to protect vulnerable persons and minors from predatory family/persons of influence but the practice of using them so as not to lose benefit entitlements seems to be fairly widespread and is unapologetically touted on the web (not necessarily a recommendation nor a confirmation of lawfulness, of course). It would, however, appear to be within the law. If so, your discomfort would be better expressed to your MP rather than SOCA.

Given that your client's solicitor committed the advice to writing it would appear that they are entirely comfortable with the legality and morality of both the proposal and their reasons for proposing it. In which case, as regards your original question as to whether you are right to advise against it, unless you are qualified and insured to do so, I would suggest the answer is no.

cymraeg_draig's picture

I'm no expert of benefit law (and dont want to be) but I have he

cymraeg_draig | | Permalink

 

If my aging memory serves me right it's perfectly legal and just the income (weekly/monthly or whatever) is taken into account when calculating benefits, much like any other income such as interest on savings is takem into account.

If I recall it's all to do with how the trust is set up.  I rather think (and dont quote me) that if the trust is set up to pay for items required as a result of the personal injury (maybe wheelchairs, stair lifts, cars for mobility etc) then it's seen as merely covering additional expenses arising from the injury, and therefore doesnt affect the benefits - although I suspect it might affect any additional benefits awarded for disabilities arising from the injury.

Certainly there is absolutely no reason to suspect and money laundering offence, and personally I would be very careful about filing reports about solicitors, or indeed any fellow professional, as the implications could prove serious not only for them, but also for you should they consider the report actionable.

 

cathygrimmer's picture

Normal stuff!

cathygrimmer | | Permalink

Such settlements are pretty normal, I believe (try Googling 'personal injury trust!). Here is a link to an article by Mark McLaughlin which covers them.

http://www.taxationweb.co.uk/tax-articles/general/where-does-it-hurt.html

I would say the solictor is right and you shouldn't be opposing the idea as it wouldn't be in your client's best interests.

Cathy

raventax@btconnect.com

 

Jon Stow's picture

Solicitors are giving good advice

Jon Stow | | Permalink

in my opinion, because the trust capital would not affect means-tested benefits such as Income Support, Housing Benefit and Council Tax Benefit. It is the source of the trust funds which determine its status in this context and I have read that solicitors are considered to have a duty to advise their clients of this option which protects their benefits.

Phil Rees's picture

Thank you to all who responded. This looks like another case of

Phil Rees | | Permalink

Following Cathy's link I find this:

"There are ‘notional capital’ anti-avoidance rules dealing with capital deprivation to enhance Income Support entitlement, but there is an exception to those rules for funds held in trust derived from damages for personal injury (Regulation 51(1)(a))."
 

As a UK taxpayer I find that quite distressing but c'est la vie.

 

Old Greying Accountant's picture

Seems like pots and kettles to me!

Old Greying Acc... | | Permalink

Do accountants not spend their time setting clients affairs in such order as to minimise tax liabilities, surely this is the opposite end of the spectrum, maximising benefits!

On a moral point, to get a personal injury award, one would assume that the recipient has befallen some sort of accident or trauma, for which the award was made to compensate. On the further assumption the personal injury claim, and the entitlement to benefits are above board, it would not seem just or fair to have them eroded by a reduction or loss of benefit

 

Fmaat's picture

Would not say an ass, but confusing? certainly so.

Fmaat | | Permalink

This is what I found;

Capital that is not counted;

Types of capital that are ignored include:

  • rent from a property other than your home - instead the value of the property (if it cannot be disregarded) is treated as producing an assumed income.
  • joint capital with other people (except married couples, those living together as husband and wife or in same sex partnership)

Consider a scenario of a husband and wife on pension credit (Presumably the same apply to other means tested benefits).Husband inherits a share of a house jointly owned with two other siblings.The three siblings rent it out together sharing 1/3 of rent. It's certainly capital owned with other people (Husband owns with two others and in this case happens to be with two other siblings) and certainly not owned by the married couple

What then? I certainly am not an expert on benefit rules but I can't think how the above scenario wouldn't  confuse even those claiming to have the best expertise on the subject.

 

Not for all companies may be

mishoo11 | | Permalink

Not for all companies may be some Personal Injury Solicitors companies are good.

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