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UC-eligible units with six-figure dividends: dividends treated as yield of a few thousand pounds of imputed capital #1948
Description
Activity
Update: #1950 answers question 1. Under UC Regs 2013 reg 66(1), which is a closed list, and reg 72(3), dividends are never UC unearned income. So the defect this issue describes is the imputed capital behind them, not the dividend rule. That data side is now PolicyEngine/policyengine-uk-data#495, and reg 77 (owner-managed companies) has its own follow-up. #1950 does not by itself change these units' eligibility: on main their dividends are already dropped as capital yield. Whichever of #1949 and #1950 merges second will re-run the combined Enhanced FRS impact.
Findings
All figures are aggregates from real runs on the issue's dataset (sha256
e433e532…), 2026, linked to the raw FRS 2024-25 where noted.1. The six-figure dividends are an imputation artefact, not survey data.
- policyengine-uk-data
impute_incomereplaces every FRS respondent'sdividend_incomewith a draw from an SPI-trained model whose only predictors are age, gender and region. - It had to:
frs.pysums the survey's own investment-account dividends on each person's row position, not theirperson_id. Almost no dividends survive: about £40m in 2024-25 against about £8bn keyed correctly. - As a result, dividends bear no relation to benefit receipt. 16% of FRS-reported UC benefit units get dividends, against 14% of all units.
The 19 benefit-unit rows behind this issue are 15 FRS-half rows and 4 SPI-donor rows. The 15 come from fewer than ten FRS households, each appearing twice because the capital-gains imputation stacks a copy of every FRS household. For those rows the model carries £3.13bn of dividends, while the same households report £0.008bn of investment-account dividends in the raw FRS. Across all FRS-reported UC units it is £2.91bn against £0.011bn.
2. They are not owner-managers. The cohort's FRS households report no dividends from a company they direct. UC's rule for a person who owns a company (reg 77) was nonetheless missing from the model. It is added in #1965, which is inert on this dataset: all 21 arrays compared are bit-identical to main, 2025-2030.
3. Dividends are never UC income. Reg 66(1) is a closed list with no head for dividends, and reg 72(3) treats them as capital. #1950 implements that. Shares count through their value, as capital (regs 46, 49, 72).
4. How #1837 changes the picture. The table follows the issue's cohort through each rule set, on the same dataset:
2026 main #1837's capital change #1950 #1837 + #1950 UC to the issue's cohort £0.517bn £0 £0.520bn £0.538bn All UC units with over £50k of dividends 30.9k 0.9k 43.4k 59.4k #1837 appears to remove the cohort, but only because tariff income then stops applying and their £4.7bn of dividends count as unearned income, which reg 66 does not allow. With dividends treated as the law requires, the rules cannot stop these units. The data must.
5. The fix is in the data: PolicyEngine/policyengine-uk-data#498.
- It keys the FRS dividends on
person_id. - It stops overwriting the FRS half with the age/sex/region draw.
Production-setting rebuilds of main and the branch, simulated with this repo's main for 2026, show the effect:
UC units with dividends above… main build #498 build £50k 16.1k units (12 records), £0.213bn UC 0 £20k 40.2k (23), £0.537bn 24.7k (6), £0.359bn, all SPI-donor rows £50k, under #1950 35.8k (51), £0.501bn 6.6k (13), £0.110bn, all SPI-donor rows - UC claimants with dividends. The share falls from 11.1% to 2.0%, against 11.3% of all units.
- FRS-half UC reporters. Their dividends fall from £3.89bn to effectively zero.
- National calibration fit. Unchanged: 84.3% vs 84.1% of 637 targets within 10%.
- What remains. SPI-donor rows that inherit an FRS household's wealth and
would_claim_uc. That is capital coherence for the donor half (policyengine-uk-data#495).
microcosm has the same FRS-half redraw and needs the same change; that is tracked separately.
- policyengine-uk-data
Problem
On the Enhanced FRS, benefit units with six-figure dividend income receive Universal Credit. Their dividends are treated as the yield of a few thousand pounds of imputed capital, so they are dropped from unearned income, and that capital stays under the £16,000 limit.
Enhanced FRS 2026-27, real run of main 44240bd (a copy of
enhanced_frs_2024_25.h5, sha256 e433e532…), UC recipients with dividend income above £50,000:corporate_wealthEvery one of these units has
uc_tariff_income> 0 anduc_assessable_capital< £16,000. Above £20,000 of dividends it is 50.3k units (31 records), £0.738bn of UC and £5.41bn of dividends.Mechanism (read in the code)
uc_unearned_income.pysubtractsdividend_incomefrom unearned income when tariff income applies and the household hascorporate_wealth> 0 (or reported capital). This treats the dividends as the actual yield of capital that the tariff income replaces.corporate_wealthbehind £4.70bn of dividends is £0.268bn, an implied yield of about 1,750%. It keeps assessable capital between the lower and upper limits, so the tariff income is small and the unit stays eligible.uc_earned_incomealso deducts the tax on those dividends from the unit's earnings, often down to zero. That fix removes £0.39bn of the UC these units get (UC to units with over £50,000 of dividends falls from £0.517bn to £0.123bn). The eligibility question here is separate.Questions
corporate_wealthout of UC capital, change this? Without that capital the tariff income may not apply, and the dividends would count in full.Found while measuring #1942, where 17 of these records carry £0.394bn of that fix's £0.505bn.