You might argue that you were fit and healthy at the time of the transfer so it would be unreasonable to conclude that the transfer was deliberate deprivation. Care fees planning and deprivation of assets. In fact, companies exist that will recommend transferring your property into an irrevocable ‘Lifetime Trust’ (also dubbed ‘Asset Protection Trusts‘ or ‘Lifetime Asset Trusts’) to avoid care fees. Paul King discusses Covid-19 challenges with Leaders Council, Paul King welcomed to the Leader’s Council, Newly registered LPAs easier to use with new service from Office of the Public Guardian, CEO Paul King interviewed by the Leaders Council of GB and NI. The Local Authority must consider: If the Local Authority believes the asset was given away to ensure it was not included in a means test, it may decide that you have ‘notional capital’ of equivalent value to that of the asset. So what exactly does that mean? £150,000 – even though you no longer technically own the property. This so called ‘7 year rule’ is a complete myth. Later, Mr Arnold needs care. The system of paying for care is complex and every case is unique. However, from what you have said, the Council may have failed to apply the correct legal test about deliberate deprivation. The £20,000 you retained will be used in full initially (as you are deemed to have £150,000, not £20,000) but after this is gone, with the title transferred to your son, you won’t be able to sell your home. This may include: # Please note that while total gifts are $35,000 no deprived asset is assessed under the 5-year rule after taking into account deprived assets already assessed in the 5-year period, e.g. They make Wills leaving their respective shares of the property to each other in trust for life, and then to their two children. Your income and savings will be taken into account in the means test. We'll match you with one of our volunteers. At the point the capital was disposed of could the person have a reasonable expectation of the need for care and support? If your partner requires care after your death, this does protect your share from care fees and it would not be regarded as deprivation of assets. A tax year is a period commencing on 1 July and ending on 30 June of the next calendar year. © 2020 April King and April King Legal are trading names of April Legal Limited, a company registered in England and Wales with Company Number 12248940. Care fees planning and deprivation of assets. If the home is held as Joint Tenants, each person owns a 100% indivisible share. If your local council assesses you as needing social care, such as getting extra help at home or moving into a care home, they will do a financial assessment (known as a means test) to calculate how much you should pay towards the fees. This is, Mr and Mrs Arnold transfer their house to an ‘Asset Protection Trust’ to protect it from care fees. C) if it would count as deprivation of assets, is that just tough shit on that person? The Local Authority may choose to provide only a basic level of care, leaving you to fund the rest. Whether avoiding the care and support charge was a significant motivation; The timing of the disposal of the asset. If you transferred your home to three of your children, each would be liable for a third of the difference. Other examples of deprivation of assets. Do I have to sell my home to pay for care? Once again, this is not the same as making a Will that leaves your share of the family wealth to your partner for life, and then to your children. Policy reference: SS Guide 4.6.2.10 General provisions for exempt assets, 4.1.10 The Rolling Five Financial Year Deprivation Provisions & Other Deprivation Changes Effective from 1 July 2002 Disposal of an asset to a special disability trust The person who receives your gift may die or run into financial difficulties. This so called ‘7 year rule’ is a complete myth. The Care Act 2014 gives Local Authorities power to recover care fees from whoever you transferred your assets to. They can pursue a claim in the County Court although this should be a last resort. We also have specialist advisers at over 140 local Age UKs. NB: This is not the same as creating a trust using your Will. If you gift something to another person and die within 7 years of making the gift, inheritance tax may be payable. This article is for educational purposes only and is no longer available for CPD hours. They note that you have transferred your house to your son, and that its current value is £130,000. You will therefore be expected to pay for the full cost of your own care. Deprivation of capital is when you knowingly reduce or transfer elsewhere your savings or other capital to get, or increase your award of Universal Credit. The value of the assets you transferred may be still taken into account when performing a means test (“Notional capital” – see above). Registered charity number 1128267. How your donations could help older people this Christmas. using savings to buy possessions, such as jewellery or a car, which would be excluded from the means test. How the Rule of 72 Works . View our privacy & data protection policy. “The ‘Deprivation of Capital’ rule means that if you simply spend your retirement fund, give it away or lose all of your money and end up needing to rely on the State for support, you will only be allowed to do so if the Government agrees with your financial decisions. Did the person have a reasonable expectation of needing to contribute to the cost of their eligible care needs? Income Support, Housing and Council Benefit, income-based Jobseeker's Allowance, income-based … The Local Authority, Mrs Smith gives her daughter a ring worth £5,000 the week before moving into residential care. So whilst the money would be a lifeline for me, I don't feel I can accept? The 7 year rule only applies to Inheritance tax. At April King Legal we are often approached by prospective clients looking to reduce their assets during their lifetime so that their assets are not used up entirely on care fees, should they need care in the future. paying off their mortgage), The transfer of a property to a child or grandchild e.g. HMRC’s Example of the Inheritance Tax 7 Year Rule * Inheritance Tax and the 7 Year Rule. Inheritance tax (IHT) is big news right now. However, your son would not be liable to pay anything which exceeds the benefit they have received from the transfer. We offer support through our free advice line on 0800 678 1602. IN WELFARE BENEFITS. We'll send you our free information pack and details of the free one hour appointments that are currently available in your area, so you know when you can see us if you want to. How do my home and savings affect what I pay for social care? I've heard about the 7-year rule & I'm sad to say that I don't think either of them will realistically still be alive in 7 years. Again, the deprivation of capital rule could apply if your sister-in-law moved in for the purpose of your mother-in-law avoiding paying residential care home charges. First, it is important to ascertain if the family home (and any other property) is held as Joint Tenants or Tenants in Common. The person you gift the property to may lose their entitlement to benefits or services based on means testing. This field is for validation purposes and should be left unchanged. People might considering gifting their assets for a number of reasons. The timing is important. If there has been a deprivation In short, the local authority has three options if they conclude that a deprivation of assets has occurred: Notional capital: The local authority will act as though you still have the asset; this is a very effective way … We also explain how you can legally and legitimately protect your share of the family assets from care fees. Many people hold the believe that if you transfer your assets and then survive for 7 years, this is not deliberate deprivation of assets. To date, few local authorities have used insolvency proceedings in this way – but with care funding stretched to the limit, we can expect an increasing number of cases going forward. Mr Andrews passes away. Deprivation of capital is deemed to have taken place when an asset is disposed of with the intention of qualifying for greater care fees funding. Said person has no other assets or savings at all, is 57, and is not currently well enough to work (although may be in a year or so). Company number 6825798. How to get help with urgent or one-off expenses, Transport concessions for disabled people, What standards you should expect from NHS services, Getting active when you find exercise difficult, Getting active but not sure where to start, What to do when the weather's particularly bad, Financial and legal tips before remarrying, Homecare: How to find the care you need at home, Help for carers looking after a loved one, What to do when your caring role changes or ends, How to complain about care to your local council, EU citizens and settled status after Brexit, Making and amending your will to include a gift to Age UK, The difference a gift in your will could make, Charity triathlon events and obstacle courses. She has a 50% interest in a property that is occupied by her husband, Mr Ellis. Asset protection trusts work by putting property into a trust for someone else, for example friends and family. With the new changes being phased in from April 2017 whereby the Government has introduced “the family home allowance” which is worth up to an additional £175,000 per person, the gradual change amounts to £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20 and £175,000 in 2020-21. … To be clear, the seven year inheritance tax rule is not related to deprivation of assets. Deliberate deprivation of assets is when the local authority deems that a person has deliberately disposed of assets to increase their eligibility for social care funding. Many people hold the belief that if you transfer your assets and then survive for 7 years, this is not deliberate deprivation of assets. In Derbyshire CC v Akrill [2005] EWCA Civ 308 the Court considered specifically that these powers could be used where someone had transferred their house by deed of gift to their children, concluding that the section could apply where a person made the transfer for the purposes of putting the house beyond the reach of those who might have a claim in respect of the costs of their imminent residential care. Mrs Ellis has moved into a care home. These companies claim that this is completely above board and will ensure your assets are protected from care fees. Care fees and the myth of the 7 year rule. As noted by the court in Yule v South Lanarkshire Council, the Local Authority can go back as far as they likewhen considering whether a gift transferred constitute… This could be protracted, expensive and stressful. transferring the title deeds of your property to someone else. their main residence or a holiday home, The transfer of assets into trust which cannot be revoked, Making a saving on inheritance tax or other costs on death, Avoiding the need to sell their assets to pay for care fees (note that under the Care Act, it is now possible to set up a, Making themselves eligible for means tested benefits (or getting a higher level of benefits by reducing their assets), Reducing the burden of the asset (for example, a company, or a holiday let), Reducing the administrative burden on death. As noted by the court in Yule v South Lanarkshire Council, the Local Authority can go back as far as they like when considering whether a gift transferred constitutes deliberate deprivation. Get a free weekly friendship call. $32,000 plus $3,000 minus $22,000 = $13,000, which is less than the relevant free area of $30,000. This can result in a breakdown of relationship between you and the person you gifted your property too. Lines are open 8am-7pm, 365 days a year. Benefits Calculator – what are you entitled to? © Age UK Group and/or its National Partners (Age NI, Age Scotland and Age Cymru) 2020. Many people hold the believe that if you transfer your assets and then survive for 7 years, this is not deliberate deprivation of assets. This is because they do not own the share outright – they only have a life interest. When your council is deciding whether getting rid of property and money has been a deliberate deprivation of assets, they will consider two things: It’s not just giving away your money that could be seen as a deliberate deprivation of assets. They can even move home with the permission of the trustees. Find out how the means test takes into account the value of your home. Note that Yule v South Lanarkshire Council [1999] 1 CCLR 546 establishes there is no time limit on how far back Local Authorities can look when deciding whether a person has deliberately deprived themselves of assets to avoid residential care. They continue to live in the property. This process can be lengthy and involve going through the Local Authority’s complaints procedure, Ombudsman procedures and ultimately court proceedings. I think it would be viewed as deprivation of assets if he needed nursing home care. Our service is flexible to suit the different needs of everyone who takes part. These include: However, if you transfer your assets to your children or to a trust during your lifetime and you later need care, your transfer may be regarded as a deliberate deprivation of assets. Who can make ‘Do Not Resuscitate’ decisions for me? Which of my assets can be left in a Will? Your house is worth £100,000 at the time of the transfer. For the Local Authority to take action, they would need to show that your intention at the time of disposal was to exclude the property from means testing to avoid care fees. If you need to move into residential care, your property could be taken into account. Free to call 8am – 7pm 365 days a year Find out more. Couples who act now can protect their own share of assets from care home fees in a way that is completely legitimate and acceptable to the Local Authority. In other words, if your care fees came to £100,000 and your home was only worth £50,000, your son would only be liable for £50,000. Tax year rule (disposals on or after 1 July 2002) VEA ? If the couple owns the property as Joint Tenants, it is possible to sever the tenancy so that it is instead held as Tenants in Common. Speak to us if you would like further advice about this. It is usually quite difficult to provide evidence of your intention and in absence of adequate evidence, the judge may reach the conclusion that the transfer was to avoid means testing. What if I gave my money or home away a long time ago? She holds a Masters in Law with Distinction and was Highly Commended by CILEX in 2018 for her private client expertise. If your capital has reduced significantly you may be asked for evidence that you no longer have it. The easiest way to understand the 7/14 year rule is to treat each transfer in chronological sequence and don't "add the chargeable transfers to the estate" that's a hangover from the CTT days (pre '86) when you kept a chronological record of lifetime transfers made and some examination textbooks decided to continue the practice. If you have assets above £23,250, you will be expected to pay for the full cost of your care. Once your remaining assets are used up, the Local Authority can take enforcement action in respect of ongoing care fees. For example, the Rule of 72 states that $1 invested at an annual fixed interest rate of 10% would take 7.2 years ((72/10) = 7.2) to grow to $2. It could be very stressful and very expensive. Practice Note. If however the property is held as Tenants in Common, each person owns a divisible share of the property (e.g. Get a free weekly friendship call. The 7 year survivorship requirement applies to Inheritance Tax PETs (Potentially Exempt Transfers), and not to notional capital. If a Local Authority decided to pursue a claim for care funding, you would have to challenge the decision – and would have the burden of proving that the Local Authority’s reasoning or decision was ‘so unreasonable or irrational that no reasonable person acting reasonably could have made it’ (known as ‘Wednesbury unreasonable’ – Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB233). We suggest you find out more before you take any action and contact your local Age UK for face-to-face help. Our article on deprivation of assets looks at how some types of gifts or trusts can be regarded as ‘deprivation of assets’. A further key point of the above solution is that it is extremely affordable. This may be before making a claim or during an existing claim. Deprivation of income may include the gifting or selling of income bearing assets. If your local council concludes you have deliberately reduced your assets to avoid paying care home fees, they may still calculate your fees as if you still owned the assets. The natural reaction of many people, when considering the future cost of care, is to divest themselves of the assets that would be taken into account – see Paying for Care Home Fees – the Basic Rules.. Telephone friendship. Additionally we look at the ‘7 year deprivation rule’ myth. He sells the home to fund this. deprivation. Gifts made in excess of certain amounts are treated as an asset […] April King Legal Head office: Huntingdon House 278 - 290 Huntingdon Street Nottingham NG1 3LY. The local authority must decide based on all the case facts and clear reasons, which could be challenged. Mr Andrews and Mrs Andrews own their home as Joint Tenants in Common in equal shares. Home » Blog » Deprivation of assets – a guide. The trust cannot be revoked. Should they need care, the deceased partner’s share will not be taken into account for means testing. When a local authority carries out a financial assessment for care it will ask about previously-owned assets, not just those that are owned currently. Different methods of reducing your money or property could count too, including: If the local council thinks that you have deliberately reduced your assets to avoid care fees, they may still include the value of the assets you no longer have when they do the means test. In these circumstances a Local Authority would not consider that Mrs Ellis has deliberately deprived herself of capital to reduce her care home charges. There is a 7 year rule that relates to inheritance taxbut this is something different altogether. With this in mind, many people look for ways of reducing their assets prior to needing care. VAT No: 335753881. Some people consider giving away their home or money, perhaps to relatives, friends or charities, so that they won’t be taken into account in the means test. This leaves you with assets of just £20,000. Centrelink gifting and deprivation rules have been designed to prevent people from giving away assets or income over a certain level in order to increase pension and allowance entitlements. there would also be inheritance tax implications to this). About the Age UK Advice Line cash) to purchase an insurance bond would be a common approach to deprivation. There is also good evidence that families are put under a considerable amount of pressure to pay for care, even when a gift was genuinely innocent. suddenly spending a lot of money in a way which is unusual for your normal spending. Local authorities will also look for other possible examples of deprivation of assets, such as: Asset protection trusts. This might include action in the Magistrates Court, imposing a charge on the property (even though it is no longer in your name) or even reversing the transfer. Unfortunately, there is no “7-year rule” when it comes to paying for care and the Council can go back as far as they wish when investigating deprivation of assets. If someone intentionally reduces their assets - such as money, property or income - so these won’t be included in the financial assessment for care home fees, this is known as ‘deprivation of assets’. The council will look at when you reduced your assets and see if, at the time, you could reasonably expect that you would need care and support. For disposal of assets on or after 1 July 2002, section 52JA (for an individual) and 52JC (for members of a couple) provides a tax year rule that replaces the pension year rule. Mr Andrew’s share is safe and will go to the children when Mrs Andrews passes away. At this stage, the Local Authority have an obligation to provide care but they can seek recovery of the payment of care fees using debt recovery methods (see e.g Robertson v Fife [2002] UKHL 35). However, Mr Ellis wants to move to a smaller property. A possible way to establish intention is to show that there was no immediate need for care when the transfer was made, and it was not foreseeable that care would be required in the future. Once your assets reach the lower £14,250 limit, the Local Authority will take over funding your care fees. Local Authorities have the power to recover contributions towards care charges, taking into account any property that has been deliberately given away. "Insolvency" means being unable to pay debts. Once the debt for unpaid care fees reaches £750, they can alternatively start insolvency proceedings to declare you bankrupt. However, any gift can be set aside with no time limits (without bankruptcy) under the Insolvency Act if the Court believes that the transfer was made for the purpose of putting assets beyond the reach of a potential creditor or otherwise prejudicing the creditor’s interests. If there’s Inheritance Tax to pay, it’s charged at 40% on gifts given in the 3 years before you die.Gifts made 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.Gifts are not counted towards the value of your estate after 7 years. Your remaining assets may be used up entirely to pay for care (because you are deemed to still own the asset, even though you gave it away). There is no time limit on Deprivation of Assets - purely judged on whether you could have foreseen a need for financing care … If you transferred your home within two years (or within five years if you were insolvent at the time of the transaction – which is unlikely), the transaction can be set aside. Our service is flexible to suit the different needs of everyone who takes part. To be clear, the seven year inheritance tax ruleis not related to deprivation of assets. Some time afterwards, you need care and the Local Authority performs a means test. Deprivation of Property The Constitution clearly requires that the government must provide due process before it deprives a person of real or personal property. This is tapered – so if you survive for less than 3 years the full 40% may be payable; 3-4 years = 32% , 4 to 5 years = 24%, 5 to 6 years = 16% and 6 – 7 years = 8%. To find out more, order our free information pack. Jen is a Solicitor and Chartered Legal Executive. However, in the above scenario, this would be balanced against the fact that you were still living in the property (NB. It can also mean you don’t get the level of care that you need. Give money away to avoid care fees means test. D) if they were granted PIP, the same questions apply! At the close of what's been, for many, a terrifying and isolating year, older people are facing a Christmas like no other in living memory. If you transfer assets during your lifetime, the main risks are: Note also that if you transfer your home but continue to live in it, you will not avoid inheritance tax (if this is one of your intentions). The key consideration here is the intention behind making the transfer. Further, there is no time limit for means tested benefits and if it is evident that the transfer was done to try and secure benefits from the State, local authority, or … This is known as a ‘gift with reservation of benefit’. In 2018/19, while gifts totalling $35,000 have been made, no deprived asset is assessed under the five-year rule after taking into account the deprived assets already assessed, i.e. This so-called ‘7 year rule’ is a complete myth. Three weeks later he enters a care home and gives the car to his son. $33,000 + $2,000 – $23,000 = $12,000, which is less than the relevant limit of $30,000. A SUMMARY OF THE CASE LAW ON ITS APPLICATION. If you or your partner need care in later life and you are not entitled to NHS Continuing Healthcare funding, the Local Authority will usually conduct a means test to see if you can fund the cost of care yourself. Under the 'deprivation of capital rule', a claimant who deprives him or herself of capital for the purpose of retaining or obtaining entitlement to means-tested benefits (i.e. They will certainly ask where the proceeds of the house sale have gone I would imagine no matter how many years pass, especially as your MIL is already needing care in the home and could consider it a deliberate deprivation of assets First person dies, the seven year inheritance tax ruleis not related to of... For CPD hours is valued at £175,000 you transfer the title deeds your... 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