[1995] UKSSCSC CIS_117_1995 (01 November 1995)

Factual and Procedural Background

The Plaintiff, formerly married to the Defendant, transferred his entire interest in the former matrimonial home to the Defendant pursuant to a consent order made in divorce proceedings in the County Court on 7 February 1992. The order included a provision charging the property with a payment to the Plaintiff of a sum equal to 16/57ths of the property's net value, payable upon certain future events such as the Defendant's death, remarriage, or cohabitation. The Plaintiff claimed income support in June 1994, disclosing this contingent financial interest. The adjudication officer denied income support on the basis that the Plaintiff’s capital exceeded the prescribed limit. The Plaintiff appealed to the Social Security Appeal Tribunal, which upheld the denial, valuing the Plaintiff’s interest at 16/57ths of the property’s value without discount for the deferred payment. The Plaintiff then appealed with leave granted, contending that the interest should be disregarded as a reversionary interest or alternatively properly discounted for deferred payment.

Legal Issues Presented

1. Whether the Plaintiff’s rights under the court order constitute a "reversionary interest" under paragraph 5 of Schedule 10 to the Income Support (General) Regulations 1987, thereby warranting disregard in the income support capital calculation.
2. Whether the Social Security Appeal Tribunal erred in valuing the Plaintiff’s interest by failing to apply an appropriate discount to reflect the deferred nature and uncertain timing of the payment.

Arguments of the Parties

Appellant's Arguments

• The Plaintiff argued that the interest should be disregarded altogether as a "reversionary interest" under paragraph 5 of Schedule 10, relying on the ordinary meaning of the term and the absence of any immediate entitlement to money.
• Alternatively, the Plaintiff contended that if the interest was not a reversionary interest, the valuation by the tribunal was erroneous because it failed to discount the value to reflect the fact that payment was not immediate and might not occur for many years.
• The Plaintiff also suggested potential applicability of paragraph 3 of Schedule 10, relating to sums attributable to proceeds of sale of former premises, although this was not accepted by the adjudication officer.

Respondent's Arguments

• The adjudication officer disagreed with the Plaintiff’s reliance on paragraph 3 and agreed that paragraph 4 was irrelevant.
• He supported the view that the Plaintiff’s rights did not constitute a reversionary interest under paragraph 5, but acknowledged the need for correct valuation reflecting the deferred payment nature.
• At the hearing, counsel for the adjudication officer maintained that the Plaintiff’s interest was a secured debt payable in the future, not an interest in the property itself.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Re Fisher [1943] Ch 377	Clarification that a future debt payable is not a "reversionary interest" within the meaning of relevant legislation.	The court followed this reasoning to conclude the Plaintiff’s rights were a secured debt payable in the future, not a reversionary interest in the property.
Chief Adjudication Officer v. Palfrey (unrep. CA 8 February 1995) [R(IS) 26/95]	Adopted a broad interpretation of "reversionary interest" to include a landlord’s current interest in rented property.	The court considered this precedent but distinguished the Plaintiff’s rights as not conferring any interest in the property itself, thus not falling within the broader definition.
R(SB) 3/86, appendix paragraph 21	Definition of reversionary interest as a future right without present enjoyment but with a vested or contingent right to enjoyment in the future.	The court acknowledged this definition but found the Plaintiff’s rights were to a money sum only, not an interest in property, thus not fitting the definition.

Court's Reasoning and Analysis

The court began by examining the nature of the Plaintiff’s rights under the consent order. It was established that the Plaintiff had transferred all his property interest to the Defendant but retained a charge over the property securing a future payment measured by 16/57ths of the property’s value. The court determined that this charge constituted a secured debt payable at a future date rather than a reversionary interest in the property itself.

The court relied on the reasoning in Re Fisher, where a future debt was distinguished from a reversionary interest, emphasizing that the latter requires a future interest in specific property, not merely a promise of payment. The court also considered the broader interpretation of reversionary interest in Chief Adjudication Officer v. Palfrey but concluded this did not extend to the Plaintiff’s rights because he had no present interest in the property.

Regarding the valuation, the court found that the Social Security Appeal Tribunal erred by valuing the Plaintiff’s rights as if immediately realizable and equal to 16/57ths of the net property value. The court stressed the necessity of discounting the value to reflect the deferred and uncertain timing of payment, potentially over decades, and the illiquidity of the charge. It concluded that after appropriate discounting, the value would be significantly less than the prescribed capital limit for income support.

The court thus set aside the tribunal’s decision, substituting its own decision that the Plaintiff’s rights should be valued with an appropriate discount, enabling the Plaintiff to qualify for income support.

Holding and Implications

The court ALLOWED THE APPEAL and set aside the Social Security Appeal Tribunal’s decision, holding that:

• The Plaintiff’s rights under the court order do not constitute a reversionary interest in the property for the purposes of Schedule 10, paragraph 5, of the Income Support (General) Regulations 1987.
• The Plaintiff’s rights represent a secured debt payable at a future date and must be valued by applying an appropriate discount to reflect the deferred nature and uncertainty of payment.
• The matter of valuation is remitted to the adjudication officer to determine the discounted present value, which is likely to be below the capital limit for income support.
• The Plaintiff should be considered for income support backdated to 27 May 1994 and may be eligible for interim payments if valuation delays occur.

No new precedent was established beyond the application and clarification of existing principles concerning reversionary interests and valuation of deferred debts in the context of income support regulations.