Gifts to avoid care home fees
14/06/2021
(Last Updated: 15/11/2023)
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7 min read
Deliberate deprivation of assets
Gifts to avoid care home fees may seem like a legitimate way to pass on your property to your children or family while still assuring yourself the same level of care, however this is viewed as the deliberate deprivation of assets - a criminal offence.
The council will investigate and if they conclude that any gifting - particularly a property but including any other assets given to relatives or others - was a deliberate act to avoid care home fees then they will re-calculate your financial assessment including the value of your disposed property.
There may also be Inheritance Tax (IHT) to pay should you pass away within 7 years of gifting the property. You can learn more about the IHT tax rates here - Inheritance Tax on Gifts.
However there's a reasonable question to ask: were you looking to save on care home fees or simply tax planning to efficiently manage your affairs long before you ever needed to go into a care home? We will examine this in more detail below.
The Care Act 2014
Under The Care Act - Section 70 Transfer of assets to avoid charges it states:
(1)This section applies in a case where an adult’s needs have been or are being met by a local authority under sections 18 to 20 and where—
- the adult has transferred an asset to another person (a “transferee"),
- the transfer was undertaken with the intention of avoiding charges for having the adult’s needs met, and
- either the consideration for the transfer was less than the value of the asset or there was no consideration for the transfer.
This means that if the transfer of the property was at full value, then there was no deliberate deprivation and as such the proceeds from the sale will not be in the council's financial review.
What if you weren't going into a care home at the time of the gift?
The local authority conducts their financial assessment at the point when you need to go into a care home and reviews your current and historical financial position. The way the council conducts the investigation is to review:
- 1
Why did you gift the property? What was the motive to dispose of the asset? Did it allow a family member to move in? Was this a second property that wasn't needed anymore?
- 2
When did you gift the property? There is limitation on how far back in time the council will look to investigate incidences of possible gifts to avoid care home fees, however more recent transactions are more likely to be scrutinised.
- 3
How much was the gift? Would the gift amount have made a considerable difference to your capital limit? There is a large difference between gifting £1,000 over gifting the whole property valued at £500,000.
How can you gift your property?
We cover the mechanics on how to transfer property in our article - Gifting Property - 4 ways to gift your property
. How do you know if you've transferred an asset undervalue?
You may not actually know what the full price of your property is so how do you know if you have gifted the property undervalue? The Care Act 2014 covers this and states:
(6)The value of an asset (other than cash) is the amount which would have been realised if it had been sold on the open market by a willing seller at the time of the transfer, with a deduction for—
- the amount of any encumbrance on the asset, and
- a reasonable amount in respect of the expenses of the sale
The open market valuation is often obtained from a local RICS surveyor and this can act as a robust defence against any claim that a property was sold undervalue thereby deliberately depreciating an asset.
What happens if you have given gifts to avoid care home fees?
The local authority will add the value of the assets in question onto your total assets and then use this to evaluate your financial position.
This might leave you with a shortfall in terms of what you're now expected to pay towards your care home fees and you'll be expected to make up for this deficit..
Does the local authority have the power to recover care home costs?
The Care Act 2014 covers this and states:
(2)The transferee is liable to pay to the local authority an amount equal to the difference between—
- the amount the authority would have charged the adult were it not for the transfer of the asset, and
- the amount it did in fact charge the adult.
This means that if there is a difference between what the care home would have charged and what they did charge then the person who holds the asset is liable to pay the difference.
For example:
John transfers his property to his son Michael (the 'transferee') for zero consideration although the property is worth £500,000 (concessionary sale and purchase). The local authority view the transfer as a deliberate deprivation of assets and calculates that John owes £30,000 in care home fees. John is unable to pay the costs so the local authority request the payment from Michael. Michael is unable to pay so after following all reasonable steps the local authority makes an application to force the sale of Michael's home to pay off the care home fees.
What if there is more than one transferee?
The Care Act 2014 covers this and states:
(4)Where an asset has been transferred to more than one transferee, the liability of each transferee is in proportion to the benefit accruing to that transferee from the transfer.
For example:
John transfers his property to his son Michael and daughter Claudine (the 'transferees') for zero consideration although the property is worth £500,000 (concessionary sale and purchase). Michael owns 40% of the beneficial interest and Claudine owns the remaining 60% and this is drafted within a deed of trust. The local authority view the transfer as a deliberate deprivation of assets and calculates that John owes £30,000 in care home fees. John is unable to pay the costs so the local authority request the payment from Michael and Claudine. Michael is unable to pay his 40% of the £30,000 (£12,000) but Claudine can pay her 60% (£18,000) but not her brother's share. After following all reasonable steps the local authority makes an application to force the sale of Michael and Clausine's home to pay Michael's share.
How can you pay for your Care Home charges?
Given the hard facts of an aging population and where life expectancies have generally been rising, you might well wish to consider planning how you're going to pay for your care home charges, just in case you end up needing this assistance in your future, or at least how you're going to ensure you have an income to fall back on in these circumstances.
Five things you might consider among other options include:
- Buy a Care Annuity
Care fee annuities, also called immediate need annuities or even care home annuities, are tax efficient investments designed to provide people needing care (or their Powers of Attorney) with either a level, or escalating additional tax free income for the rest of their life. - Use a deferred payment agreement
Many local authorities now offer schemes where they pay for your care in return for levying a cost against your home to be realised only after you've died. You should enquire whether your particular local authority offers this service. - Build up savings
Naturally it follows that the more you have accumulated, the more that your eventual care costs will be covered. - Build up income from investments
This works in a highly similar way to savings and as for savings, there are tax breaks which can increase your total 'pot'. - Rent out your property
Many people take advantage of the Government's Rent a Room scheme, which lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home.
Written by:
Andrew Boast
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Reviewed by:
Caragh Bailey
Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.
