UC capital ignores reg 49 valuation (10% sale costs and secured debts) #1960

Problem

uc_assessable_capital sums the capital sources at face value:

• savings, other_residential_property_value and non_residential_property_value;
• corporate_wealth on main.

The code is sum(household(source, period) for source in p.capital.sources).

The Universal Credit Regulations 2013 reg 49(1) (https://www.legislation.gov.uk/uksi/2013/376/regulation/49; the Northern Ireland reg 49(1) is the same) value capital differently:

(1) Capital is to be calculated at its current market value or surrender value less— (a) where there would be expenses attributable to sale, 10%; and (b) the amount of any encumbrances secured on it.

So a let property worth £10,000 with no mortgage is £9,000 of UC capital:

• the tariff income is 12 steps × £4.35, not 16;
• where a mortgage is secured on it, the capital is less again.

Shares and other assets that cost money to sell also take the 10% deduction. Cash does not.

It is not established whether other_residential_property_value and non_residential_property_value are recorded net of secured debt in the Enhanced FRS. The variable documentation says "Total value of residential property owned by the household other than the main residence".

Effect

The model overstates UC capital for property and share holders. That raises tariff income and fails more units at the £16,000 limit (reg 18). This is not measured here.

Fix

Apply reg 49(1) in uc_assessable_capital:

• a 10% sale-cost deduction for non-cash sources, as a parameter citing reg 49(1)(a);
• secured debt against property, if the data carry it (for example a mortgage on other property).

Then add hand-computed tests and measure the impact with real runs.

Found in review of #1950. Its test cases state that they take the recorded property value as capital and do not apply reg 49.

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