Stop counting interest, dividends and rent as Universal Credit unearned income

changelog.d/uc-capital-derived-income.fixed.md

@@ -0,0 +1 @@
+Universal Credit no longer counts actual savings interest, dividends or rent as unearned income: regulation 66(1) of the Universal Credit Regulations 2013 lists no description that covers them, so capital counts only through its assumed yield (tariff income).

changelog.d/uc-capital-derived-income.removed.md

@@ -0,0 +1 @@
+Removed the `gov.dwp.universal_credit.means_test.income_definitions.capital_derived` parameter, which gated the removal of interest, dividends and rent from Universal Credit unearned income.

docs/book/programs/gov/dwp/universal-credit.ipynb

@@ -44,7 +44,7 @@
   {
    "cell_type": "markdown",
    "metadata": {},
-   "source": "## How PolicyEngine computes Universal Credit\n\nPolicyEngine computes Universal Credit at the benefit-unit level in three stages:\n\n1. **Maximum entitlement** (`uc_maximum_amount`): sum the elements the benunit qualifies for — `uc_standard_allowance`, `uc_child_element`, `uc_disability_elements`, `uc_carer_element`, `uc_housing_costs_element`, and `uc_childcare_element`.\n2. **Means test**: the maximum entitlement is reduced by the benunit's countable earnings above its work allowance (`uc_work_allowance`) at the published taper rate (the `gov.dwp.universal_credit.means_test.reduction_rate` parameter, currently 55%), plus all of its unearned income (`uc_unearned_income`), pound for pound. Unearned income is the list in `gov.dwp.universal_credit.means_test.income_definitions.unearned`: retirement pension income (State Pension and private pensions, UC Regulations 2013 regs 66(1)(a) and 67), Carer's Allowance, carer support payment (up to the Carer's Allowance rate, from November 2023), contribution-based JSA and ESA, maternity allowance, industrial injuries benefit, savings, dividend and property income, and the tariff income deemed from capital (reg 72), which replaces the actual yield of the capital it is charged on. Asset rules apply on top of this — capital above the lower threshold deems a tariff income, and capital above the upper threshold disqualifies the benunit entirely.\n3. **Benefit cap**: the post-means-test award (`universal_credit_pre_benefit_cap`) is finally reduced by `benefit_cap_reduction` to produce `universal_credit`. The benefit cap only applies to benunits without a benefit-cap exemption (working enough hours, having a qualifying disability benefit, etc.).\n\nThe take-up step is handled by the input variable `would_claim_uc`, which is populated stochastically when the dataset is built so that PolicyEngine's caseload aggregates match published DWP claimant numbers rather than the full eligible population.\n\nParameters live in `policyengine_uk/parameters/gov/dwp/universal_credit/` and the per-element formulas in `policyengine_uk/variables/gov/dwp/universal_credit/`."
+   "source": "## How PolicyEngine computes Universal Credit\n\nPolicyEngine computes Universal Credit at the benefit-unit level in three stages:\n\n1. **Maximum entitlement** (`uc_maximum_amount`): sum the elements the benunit qualifies for — `uc_standard_allowance`, `uc_child_element`, `uc_disability_elements`, `uc_carer_element`, `uc_housing_costs_element`, and `uc_childcare_element`.\n2. **Means test**: the maximum entitlement is reduced by the benunit's countable earnings above its work allowance (`uc_work_allowance`) at the published taper rate (the `gov.dwp.universal_credit.means_test.reduction_rate` parameter, currently 55%), plus all of its unearned income (`uc_unearned_income`), pound for pound. Unearned income is the list in `gov.dwp.universal_credit.means_test.income_definitions.unearned`: retirement pension income (State Pension and private pensions, UC Regulations 2013 regs 66(1)(a) and 67), Carer's Allowance, carer support payment (up to the Carer's Allowance rate, from November 2023), contribution-based JSA and ESA, maternity allowance, industrial injuries benefit, and the tariff income deemed from capital (reg 72). Actual savings interest, dividends and ordinary rental income are excluded from UC unearned income at every capital level; capital counts through its tariff income instead. Asset rules apply on top of this — capital above the lower threshold deems a tariff income, and capital above the upper threshold disqualifies the benunit entirely.\n3. **Benefit cap**: the post-means-test award (`universal_credit_pre_benefit_cap`) is finally reduced by `benefit_cap_reduction` to produce `universal_credit`. The benefit cap only applies to benunits without a benefit-cap exemption (working enough hours, having a qualifying disability benefit, etc.).\n\nThe take-up step is handled by the input variable `would_claim_uc`, which is populated stochastically when the dataset is built so that PolicyEngine's caseload aggregates match published DWP claimant numbers rather than the full eligible population.\n\nParameters live in `policyengine_uk/parameters/gov/dwp/universal_credit/` and the per-element formulas in `policyengine_uk/variables/gov/dwp/universal_credit/`."
   },
   {
    "cell_type": "code",

policyengine_uk/parameters/gov/dwp/universal_credit/means_test/income_definitions/unearned.yaml

@@ -1,12 +1,33 @@
-description: Unearned income sources for Universal Credit.
+description: >
+  Unearned income sources for Universal Credit. Regulation 66(1) defines
+  unearned income as income "falling within the following descriptions" and
+  lists them in sub-paragraphs (a) to (m); income outside that list is not
+  taken into account (DWP Advice for Decision Making H5002 and H5112). Actual
+  interest, dividends and rent fall in none of them: sub-paragraph (m) reaches
+  only income taxable under Part 5 of the Income Tax (Trading and Other Income)
+  Act 2005, whereas interest and dividends are charged under Part 4 and
+  property income under Part 3. Capital counts instead through its assumed
+  yield under regulation 72(1) (`uc_tariff_income`, sub-paragraph (k)). Where
+  capital is treated as yielding income, regulation 72(3) makes the actual
+  income derived from it, "for example rental, interest or dividends", part of
+  the person's capital. So `savings_interest_income`, `dividend_income` and
+  `property_income` are not on this list at any capital level. Income from a
+  trust or an annuity (sub-paragraphs (i) and (j)) and estate income (ITTOIA
+  Part 5 Chapter 6, sub-paragraph (m)) still count, but none of them is in
+  those three variables. Letting that amounts to a trade, such as a bed and
+  breakfast, gives self-employed earnings under regulation 57, which the model
+  reads from `self_employment_income`. Whether other letting can be a trade is
+  unsettled: DWP staff guidance treats a self-employed landlord's rent as
+  self-employed income, while letting is not a trade for tax, and the model
+  does not identify such landlords.
 metadata:
   economy: false
   label: Universal Credit unearned income sources
   propagate_metadata_to_children: true
   period: year
   unit: list
   reference:
-    - title: The Universal Credit Regulations 2013 reg. 66
+    - title: The Universal Credit Regulations 2013 reg. 66(1)
       href: https://www.legislation.gov.uk/uksi/2013/376/regulation/66
     - title: The Universal Credit Regulations 2013 reg. 67 (retirement pension income)
       href: https://www.legislation.gov.uk/uksi/2013/376/regulation/67
@@ -22,6 +43,14 @@ metadata:
       href: https://www.legislation.gov.uk/uksi/2026/246/article/25
     - title: The Universal Credit Regulations 2013 reg. 72
       href: https://www.legislation.gov.uk/uksi/2013/376/regulation/72
+    - title: The Universal Credit Regulations 2013 reg. 57
+      href: https://www.legislation.gov.uk/uksi/2013/376/regulation/57
+    - title: The Universal Credit Regulations (Northern Ireland) 2016 reg. 66(1)
+      href: https://www.legislation.gov.uk/nisr/2016/216/regulation/66
+    - title: The Universal Credit Regulations (Northern Ireland) 2016 reg. 72
+      href: https://www.legislation.gov.uk/nisr/2016/216/regulation/72
+    - title: DWP Advice for Decision Making, Chapter H5 (unearned income), H5002, H5093-H5094 and H5112
+      href: https://www.gov.uk/government/publications/advice-for-decision-making-staff-guide
 
 
 values:
@@ -34,9 +63,6 @@ values:
   - private_pension_income
   - state_pension
   - uc_tariff_income
-  - savings_interest_income
-  - dividend_income
-  - property_income
   2023-11-19:
   - carers_allowance
   - uc_unearned_carer_support_payment
@@ -47,6 +73,3 @@ values:
   - private_pension_income
   - state_pension
   - uc_tariff_income
-  - savings_interest_income
-  - dividend_income
-  - property_income

policyengine_uk/tests/policy/baseline/finance/benefit/family/universal_credit/income/uc_income_from_capital.yaml

@@ -0,0 +1,193 @@
+# Universal Credit awards with interest, dividends and rent, hand-computed from
+# the UC Regs 2013 (and the UC Regs (NI) 2016, which are the same here).
+#
+# - Reg. 66(1): unearned income is income "falling within the following
+#   descriptions"; none covers actual interest, dividends or rent. Reg.
+#   66(1)(m) reaches only ITTOIA 2005 Part 5 income (interest and dividends
+#   are Part 4, property income Part 3). DWP ADM H5002: "If a type of income
+#   is not listed above, it does not affect the claimant's award."
+# - Reg. 72(1): capital above £6,000 yields £4.35 a month for each £250 or
+#   part of £250 (reg. 66(1)(k)). Reg. 72(3): actual income derived from that
+#   capital, "for example rental, interest or dividends", is capital.
+# - Reg. 22(1): award = maximum amount - 55% of earned income - all unearned
+#   income.
+#
+# 2026 rates (gov.dwp.universal_credit.standard_allowance, 2026-27): single
+# claimant 25 or over £424.90 a month, so 12 x 424.90 = £5,098.80 a year;
+# joint claimants, one or both 25 or over, £666.97 a month, so £8,003.64.
+# Every case below has income under the personal allowance, so no income tax
+# or National Insurance, and no housing, child or disability element.
+#
+# Property values are taken as UC capital as entered. Reg. 49(1) would first
+# deduct 10% for sale costs and any secured debt from a property's market
+# value; the model does not yet (#1960). So "£10,000 of let property" below
+# means £10,000 of assessable capital, for example a property with a market
+# value of £11,111.11 and no mortgage.
+
+- name: Savings interest, dividends and rent below £6,000 of capital leave the award unchanged
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 30
+        savings_interest_income: 200
+        dividend_income: 300
+        property_income: 1_000
+    benunits:
+      benunit:
+        members: person
+    households:
+      household:
+        members: person
+        savings: 5_000
+  output:
+    # No tariff income (capital is not above £6,000) and no unearned income.
+    uc_tariff_income: 0
+    uc_unearned_income: 0
+    uc_maximum_amount: 5_098.80
+    universal_credit: 5_098.80
+
+- name: Rent and interest are not counted on top of tariff income from a let property
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 30
+        savings_interest_income: 500
+        property_income: 4_800
+    benunits:
+      benunit:
+        members: person
+    households:
+      household:
+        members: person
+        savings: 0
+        other_residential_property_value: 10_000
+  output:
+    # Tariff income on £10,000 of capital: (10,000 - 6,000) / 250 = 16 steps
+    # x £4.35 = £69.60 a month, £835.20 a year. UC = 5,098.80 - 835.20 =
+    # £4,263.60.
+    uc_tariff_income: 835.20
+    uc_unearned_income: 835.20
+    universal_credit: 4_263.60
+
+- name: Northern Ireland treats rent and interest from capital the same way
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 30
+        savings_interest_income: 500
+        property_income: 4_800
+    benunits:
+      benunit:
+        members: person
+    households:
+      household:
+        members: person
+        region: NORTHERN_IRELAND
+        savings: 0
+        other_residential_property_value: 10_000
+  output:
+    # UC Regs (NI) 2016 regs. 66(1) and 72 match the GB text on these points.
+    uc_tariff_income: 835.20
+    uc_unearned_income: 835.20
+    universal_credit: 4_263.60
+
+- name: Rent from a lodger in the home does not reduce the award
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 30
+        property_income: 3_000
+    benunits:
+      benunit:
+        members: person
+    households:
+      household:
+        members: person
+        tenure_type: OWNED_OUTRIGHT
+        main_residence_value: 200_000
+  output:
+    # The home is disregarded capital (Sch. 10 para. 1) and rent from a
+    # sub-tenant or boarder is not income (ADM H5112).
+    uc_tariff_income: 0
+    uc_unearned_income: 0
+    universal_credit: 5_098.80
+
+- name: A partner's dividends do not reduce a working couple's award
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 30
+        employment_income: 10_000
+      partner:
+        age: 32
+        dividend_income: 2_000
+    benunits:
+      benunit:
+        members: [person, partner]
+    households:
+      household:
+        members: [person, partner]
+        savings: 3_000
+  output:
+    # No work allowance (no child, no limited capability for work), so the
+    # earnings reduction is 55% x 10,000 = 5,500. UC = 8,003.64 - 5,500 =
+    # £2,503.64. The dividends do not appear anywhere in the calculation.
+    uc_earned_income: 10_000
+    uc_unearned_income: 0
+    uc_maximum_amount: 8_003.64
+    universal_credit: 2_503.64
+
+# The two cases below pin monotonicity at the tariff threshold. Before this
+# fix, £1 more savings switched interest out of unearned income and raised the
+# award from £2,098.80 to £5,046.60.
+- name: Interest does not reduce the award with savings of £6,000
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 30
+        savings_interest_income: 3_000
+    benunits:
+      benunit:
+        members: person
+    households:
+      household:
+        members: person
+        savings: 6_000
+  output:
+    uc_tariff_income: 0
+    uc_unearned_income: 0
+    universal_credit: 5_098.80
+
+- name: One more pound of savings lowers the award by the tariff income only
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 30
+        savings_interest_income: 3_000
+    benunits:
+      benunit:
+        members: person
+    households:
+      household:
+        members: person
+        savings: 6_001
+  output:
+    # £1 over £6,000 is an incomplete £250 step: £4.35 x 12 = £52.20.
+    # UC = 5,098.80 - 52.20 = £5,046.60.
+    uc_tariff_income: 52.20
+    uc_unearned_income: 52.20
+    universal_credit: 5_046.60