Gifting Property & Deliberate Deprivation of Assets: A UK Guide
The prospect of care home fees often prompts families to consider gifting property to protect a future inheritance. However, if a local authority determines you have disposed of assets specifically to reduce your financial liability for care, they may treat the transfer as a 'deliberate deprivation of assets'. This can lead to significant legal complications when finalising long-term care plans, as the council may assess your wealth as if you still owned the gifted property.
The council will investigate and if they conclude that any gifting, or selling for a negligible sum, 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.
Whilst gifts to avoid care home fees are a criminal offence, future planning before you need the care isn't. In this article, we flag the risks and show you ways to legally avoid care home fees.
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.
Source: The Care Act - Section 70 Transfer of assets to avoid charges
Different ways to gift your home and the risks
Critical Risk:
Gifting a property immediately before a care assessment. This would be a gifted transfer of property, normally for no money.High Risk:
Selling a house to a family member significantly under market value.Moderate Risk:
Placing assets into a trust where you still benefit from them (e.g., living in the gifted home).
What if you weren't going into a care home when the gift was made?
The local authority conducts its 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 a limitation on how far back in time the council will look to investigate incidents of possible gifts to avoid care home fees; 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 and gifting the whole property valued at £500,000.
How do you know if you've transferred an undervalued asset?
You may not actually know what the full price of your property is, so how do you know if you have gifted the property undervalued? 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
Source: The Care Act 2014
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 undervalued, 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 to 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.
Source: The Care Act 2014
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 views 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 requests 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 you transferred to more than one person?
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.
Source: The Care Act 2014
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 views 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 requests 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 Claudine's home to pay Michael's share.
How to Justify Asset Transfers
To ensure your estate planning is robust, you must be able to respond to council enquiries regarding your motivation for the gift.
- Timing: Transfers made when you were fit and healthy are less likely to be viewed as deprivation.
- Purpose: Provide evidence that the gift was for a genuine reason, such as helping a child onto the property ladder.
- Valuation: Always use a RICS surveyor to prove the property was transferred at a fair price. You do this with a Current Market Valuation.
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 care home annuities, are tax-efficient investments designed to provide people needing care (or their Powers of Attorney) with either a level or escalating tax-free income for the rest of their lives. - 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 with savings, there are tax breaks that 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.
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.
Caragh has written extensively for SAM with expertise on sale and purchase conveyancing, the Help to Buy redemption process, equity transfers and deeds, leasehold reform, RICS home surveys, shared ownership, and independent legal advice for specialist mortgage products and ownership structures.
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