After the first person dies, the surviving spouse or civil partner will have full use of the property for life. 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). 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. Deprivation of Property The Constitution clearly requires that the government must provide due process before it deprives a person of real or personal property. Other examples of deprivation of assets. The Local Authority, Mrs Smith gives her daughter a ring worth £5,000 the week before moving into residential care. This may include: The trust cannot be revoked. To be clear, the seven year inheritance tax ruleis not related to deprivation of assets. A tax year is a period commencing on 1 July and ending on 30 June of the next calendar year. If you have assets above £23,250, you will be expected to pay for the full cost of your care. UK: Regular cash gifts did not prove deliberate deprivation of assets Monday, 05 February 2018 The woman, referred to as Mrs Y, suffered a stroke in 2007 and, aged 80, had to go into residential care. The local authority must decide based on all the case facts and clear reasons, which could be challenged. Get a free weekly friendship call. All Rights Reserved, Advice on caring for someone you don't live with, Advice on caring for someone you live with, Benefits and accessing cash - coronavirus advice, Housing rights advice during coronavirus pandemic, Shielding, social distancing and self-isolation, Three-tier coronavirus alert levels: Tier 1, 2 and 3 rules explained. These companies claim that this is completely above board and will ensure your assets are protected from care fees. However, in the above scenario, this would be balanced against the fact that you were still living in the property (NB. Mr Andrew’s share is safe and will go to the children when Mrs Andrews passes away. 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 Speak to us if you would like further advice about this. £150,000 – even though you no longer technically own the property. Once your remaining assets are used up, the Local Authority can take enforcement action in respect of ongoing care fees. Deliberate deprivation happens when an individual gives away an asset for the main purpose of avoiding care home fees. Once the debt for unpaid care fees reaches £750, they can alternatively start insolvency proceedings to declare you bankrupt. This is, Mr and Mrs Arnold transfer their house to an ‘Asset Protection Trust’ to protect it from care fees. If the home is held as Joint Tenants, each person owns a 100% indivisible share. 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). 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. 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. Three weeks later he enters a care home and gives the car to his son. She has contributed extensively to various legal blogs and publications, including LexisPSL and the Legal Executive Journal, in addition to providing commentary for the Law Gazette. 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’. This may be before making a claim or during an existing claim. Telephone friendship. Company number 6825798. This can result in a breakdown of relationship between you and the person you gifted your property too. HMRC’s Example of the Inheritance Tax 7 Year Rule * Inheritance Tax and the 7 Year Rule. 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. 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. Local Authorities have the power to recover contributions towards care charges, taking into account any property that has been deliberately given away. Get a free weekly friendship call. She holds a Masters in Law with Distinction and was Highly Commended by CILEX in 2018 for her private client expertise. There is a 7 year rule that relates to inheritance taxbut this is something different altogether. The guidance points out that using assets (i.e. 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. there would also be inheritance tax implications to this). 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. If your capital has reduced significantly you may be asked for evidence that you no longer have it. You will therefore be expected to pay for the full cost of your own care. 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 value of the assets you transferred may be still taken into account when performing a means test (“Notional capital” – see above). 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. © Age UK Group and/or its National Partners (Age NI, Age Scotland and Age Cymru) 2020. Our service is flexible to suit the different needs of everyone who takes part. The key consideration here is the intention behind making the transfer. 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. The timing is important. Deprivation may also have occurred when: the person (or their partner) re-arranges their financial circumstances, so as to reduce their income or assets after having received written advice of the income contribution they are required to make 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. As she does not own Mr Andrew’s share of the property (she only has a ‘life interest’), it is not taken into account when performing a means test. 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. 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. View our privacy & data protection policy. However, your son would not be liable to pay anything which exceeds the benefit they have received from the transfer. 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. A SUMMARY OF THE CASE LAW ON ITS APPLICATION. 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. Additionally we look at the ‘7 year deprivation rule’ myth. So whilst the money would be a lifeline for me, I don't feel I can accept? 50%) which they can leave to whoever they like. Later, Mrs Andrews requires residential care. To find out more, order our free information pack. 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. If you transferred your home to three of your children, each would be liable for a third of the difference. When one dies, the other continues to own 100% of the property. 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. The person who received your gift may not be willing to contribute. This article is for educational purposes only and is no longer available for CPD hours. April King Legal Head office: Huntingdon House 278 - 290 Huntingdon Street Nottingham NG1 3LY. suddenly spending a lot of money in a way which is unusual for your normal spending. 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. Because Mr Ellis still occupies the family home, the value of the property is disregarded for means testing. At the point the capital was disposed of could the person have a reasonable expectation of the need for care and support? We'll match you with one of our volunteers. 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. Gifts made in excess of certain amounts are treated as an asset […] 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. A further key point of the above solution is that it is extremely affordable. 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. 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). © 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. She has a 50% interest in a property that is occupied by her husband, Mr Ellis. 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). The Local Authority will therefore treat you as if your total capital is the current value of the house plus your remaining assets – i.e. 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. The person who receives your gift may die or run into financial difficulties. Our service is flexible to suit the different needs of everyone who takes part. They decide that there is no reasonable explanation for you making this transfer, except for avoiding having to pay for care yourself. It can also mean you don’t get the level of care that you need. Tax year rule (disposals on or after 1 July 2002) VEA ? The couple should then revise their Will so that each leaves their share of the property on trust to the other for life. They can pursue a claim in the County Court although this should be a last resort. 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. The system of paying for care is complex and every case is unique. To be clear, the seven year inheritance tax rule is not related to deprivation of assets. ; and. A decision to accept or reject such evidence requires an overall assessment of that evidence by the Local Authority (see Beeson v Dorset County Council [2002] HRHR 15). Find out how the means test takes into account the value of your home. 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. If you were fit and healthy, and could not have imagined needing care and support at the time, then it may not count as deprivation of assets. Whether avoiding the care and support charge was a significant motivation; The timing of the disposal of the asset. Which of my assets can be left in a Will? So for example, if you transfer your home to your child or children when you are in your forties (although still fit and healthy) but continue to live in the property until your sixties (when you need care), there is a high risk the Local Authority will still regard this as deliberate deprivation of assets. 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 Local authorities will also look for other possible examples of deprivation of assets, such as: Asset protection trusts. However, Mr Ellis wants to move to a smaller property. United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. I think it would be viewed as deprivation of assets if he needed nursing home care. This process can be lengthy and involve going through the Local Authority’s complaints procedure, Ombudsman procedures and ultimately court proceedings. C) if it would count as deprivation of assets, is that just tough shit on that person? Later, Mr Arnold needs care. 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. Even a gift made 20 or 30 years ago could be considered. 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. Annex E of the guidance lists factors they should take into account: While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. 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… 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. This so called ‘7 year rule’ is a complete myth. 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. Once your assets reach the lower £14,250 limit, the Local Authority will take over funding your care fees. This leaves you with assets of just £20,000. What if I gave my money or home away a long time ago? paying off their mortgage), The transfer of a property to a child or grandchild e.g. 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.. D) if they were granted PIP, the same questions apply! In other words, if you transferred your home to your son, your son is liable to pay the Local Authority the difference between what it would have charged, had the transfer not been made. However, from what you have said, the Council may have failed to apply the correct legal test about deliberate deprivation. This so called ‘7 year rule’ is a complete myth. Your house is worth £100,000 at the time of the transfer. 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. 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 … The question here is whether Mr Jones knew he would be moving into residential care. People might considering gifting their assets for a number of reasons. We offer support through our free advice line on 0800 678 1602. Practice Note. 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. If you die within 7 years of giving away all or part of your property, your home will be treated as a gift and the 7 year rule applies. Did the person have a reasonable expectation of needing to contribute to the cost of their eligible care needs? 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. Benefits Calculator – what are you entitled to? How do my home and savings affect what I pay for social care? Avoiding paying for care must have been a significant reason for giving away your home or reducing your savings. 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. There is no time limit on Deprivation of Assets - purely judged on whether you could have foreseen a need for financing care … Deprivation of assets in social care Page 7 of 18 Local authority investigations The local authority may conduct its own investigations into whether deprivation of assets has occurred, rather than relying solely on information you provide. 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). "Insolvency" means being unable to pay debts. 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. How the Rule of 72 Works . Inheritance tax (IHT) is big news right now. Mr Andrews passes away. Care fees planning and deprivation of assets. Some time afterwards, you need care and the Local Authority performs a means test. 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. 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. They can even move home with the permission of the trustees. The person you gift the property to may lose their entitlement to benefits or services based on means testing. An all-out lump sum payment of cash to a child or grandchild, A payment of a child or grandchild’s debt as a gift (e.g. Asset protection trusts work by putting property into a trust for someone else, for example friends and family. How your donations could help older people this Christmas. There is a 7 year rule that relates to inheritance tax but this is something different altogether. Many people hold the believe that if you transfer your assets and then survive for 7 years, this is not deliberate deprivation of assets. They continue to live in the property. The risk here is that these actions may be regarded as deliberate or intentional ‘deprivation of assets’. $32,000 plus $3,000 minus $22,000 = $13,000, which is less than the relevant free area of $30,000. 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. For capital assets, acceptable evidence of disposal would include a trust deed and deed of assignment. If you need to move into residential care, your property could be taken into account. 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. … The Local Authority would, Mr Jones has £20,000 in savings and uses £15,000 to buy a car. 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. NB: This is not the same as creating a trust using your Will. Care fees planning and deprivation of assets. With this in mind, many people look for ways of reducing their assets prior to needing care. The 7 year survivorship requirement applies to Inheritance Tax PETs (Potentially Exempt Transfers), and not to notional capital. 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. Let’s say you transfer the title to your house to your only son, and carry on living in it. As Tenants in Common in equal shares Huntingdon Street Nottingham NG1 3LY Ellis to... Have been had the gift not been made of making the gift, inheritance tax PETs ( Potentially Exempt )! To inheritance taxbut this is something different altogether the intention behind making the transfer on APPLICATION. Court ’ s complaints procedure, Ombudsman procedures and ultimately Court proceedings property. Last resort tax rule is not the same questions apply of a property interest in a government benefit or... Safe and will ensure your assets are worth between £14,250 and £23,250, may! Share of the case LAW on its APPLICATION legal test about deliberate deprivation of assets, acceptable evidence of would. 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Partners ( Age NI, Age Scotland and Age Cymru ) 2020 that has been given! Contribution to your son would not consider that Mrs Ellis has deliberately deprived herself of capital to reduce care... Funding your care deliberate or intentional ‘ deprivation of assets receives your gift die! In dispute in this context is whether a person of real or personal property may decide this,! My money or home away a long time ago for means testing give money away to care... Your income and savings affect what I pay for the full cost of your deprivation of assets 7 year rule, each be! You find out more people might considering gifting their assets for a third of the asset to reduce care... Income may include: the 7 year survivorship requirement applies to inheritance tax rule is not related to.... Cymru ) 2020 and Mrs Andrews own their home as Joint Tenants in Common in equal shares it... Of relationship between you and the Local Authority may choose to provide a. 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We also have specialist advisers at over 140 Local Age UKs is less than the relevant free area of 30,000!