External
Policy

Last amended: 10 October 2007

    

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Unrealisable assets are deemed to produce a notional income. The notional annual rate of ordinary income is assessed separately for each unrealisable asset.

Notional annual rate of ordinary income calculation

A person's notional annual rate of ordinary income from an unrealisable asset is the lower of:

  • 2.5% of the value of the person's and the person's partner's unrealisable asset, or
  • the amount per year that could reasonably be expected to be obtained from a purely commercial application of the person's and the person's partner's unrealisable assets.  Where the unrealisable asset is a property, this amount will be the commercial lease value.
Exceptions:

(i) If a person receives income from an unrealisable asset, special provisions apply.

(ii) Notional ordinary income is not calculated using this method if the unrealisable asset is a property and is occupied by:

  • a person's near relative or a long term tenant with a low income, or
  • one partner of a separated couple.

If the occupier is a near relative or a long term tenant with a low income, the commercial lease value is calculated as 20% of the total income of the occupant (and partner) of the property. Total income includes all social security income support payments.

If the occupier is one partner of a separated couple, the notional ordinary income calculation depends on rental arrangements between the non-occupier and the occupier.

Notional income for separated couples

 

If the occupying partner:

Then notional income is:

is paying rent to the non-occupier

t — he lesser of:

  • 2.5% of the non-occupier's interest in the property, or
  • the amount of the rent minus all reasonable expenses.

Example: bank charges are reasonable expenses

does not have a rental agreement with the non-occupier

the lesser of:

  • 2.5% of the non-occupier's interest in the property, or
  • the non-occupier's share of the commercial lease value

Example: a pensioner that has a 50% interest in the home is taken to receive 50% of the commercial lease value

refuses to pay rent to the non-occupying partner, pending property settlement

not calculated

 

Note: the non-occupier must produce clear evidence that an occupying partner refuses to pay rent – eg. a letter from a partner's solicitor

Pensioner receives income from an unrealisable asset

If a pensioner receives income from an unrealisable asset, then notional ordinary income is:

  • the lower of 2.5% of the asset's value, or
  • the commercial lease value, minus
  • actual income received.

 

Exception: The actual income received is used to calculate the rate under the hardship provisions if the actual income received is greater than calculated notional ordinary income.