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 7 year rule only applies to Inheritance tax. We also have specialist advisers at over 140 local Age UKs. Some people consider giving away their home or money, perhaps to relatives, friends or charities, so that they wonât be taken into account in the means test. April King Legal Head office: Huntingdon House 278 - 290 Huntingdon Street Nottingham NG1 3LY. The Local Authority would, Mr Jones has £20,000 in savings and uses £15,000 to buy a car. 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 person who received your gift may not be willing to contribute. I think it would be viewed as deprivation of assets if he needed nursing home care. At the point the capital was disposed of could the person have a reasonable expectation of the need for care and support? 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. However, your son would not be liable to pay anything which exceeds the benefit they have received from the transfer. C) if it would count as deprivation of assets, is that just tough shit on that person? 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. To be clear, the seven year inheritance tax ruleis not related to deprivation of assets. They make Wills leaving their respective shares of the property to each other in trust for life, and then to their two children. The risk here is that these actions may be regarded as deliberate or intentional ‘deprivation of assets’. Annex E of the guidance lists factors they should take into account: So whilst the money would be a lifeline for me, I don't feel I can accept? Give money away to avoid care fees means test. Our article on deprivation of assets looks at how some types of gifts or trusts can be regarded as ‘deprivation of assets’. This so-called â7 year ruleâ is a complete myth. It can also mean you don’t get the level of care that you need. You will therefore be expected to pay for the full cost of your own care. The Care Act 2014 gives Local Authorities power to recover care fees from whoever you transferred your assets to. Our service is flexible to suit the different needs of everyone who takes part. The Court’s powers allow it to restore the position to that which it would have been had the gift not been made. When one dies, the other continues to own 100% of the property. In these circumstances a Local Authority would not consider that Mrs Ellis has deliberately deprived herself of capital to reduce her care home charges. Free to call 8am â 7pm 365 days a year Find out more. Get a free weekly friendship call. To find out more, order our free information pack. Let’s say you transfer the title to your house to your only son, and carry on living in it. Other examples of deprivation of assets. If you need to move into residential care, your property could be taken into account. They can pursue a claim in the County Court although this should be a last resort. âThe âDeprivation of Capitalâ 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. Get a free weekly friendship call. 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. There is a 7 year rule that relates to inheritance taxbut this is something different altogether. 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 constituteâ¦ Which of my assets can be left in a Will? Gifts made in excess of certain amounts are treated as an asset [â¦] Later, Mr Arnold needs care. However, the council may decide this is a deliberate deprivation of assets. Many people hold the belief that if you transfer your assets and then survive for 7 years, this is not deliberate deprivation of assets. View our privacy & data protection policy, Making a Lasting Power of Attorney is just as important as making a Will, How to revoke a Lasting Power of Attorney. 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. 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. 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. The Local Authority may choose to provide only a basic level of care, leaving you to fund the rest. If so, the Local Authority. 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. Local Authorities have the power to recover contributions towards care charges, taking into account any property that has been deliberately given away. Do I have to sell my home to pay for care? If the home is held as Joint Tenants, each person owns a 100% indivisible share. 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. 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. R(IS)7/98 â relates to claimant having âshelteredâ her assets in an investment bond, with a future surrender value. Later, Mrs Andrews requires residential care. The trust cannot be revoked. Avoiding paying for care must have been a significant reason for giving away your home or reducing your savings. Find out how the means test takes into account the value of your home. However, in the above scenario, this would be balanced against the fact that you were still living in the property (NB. The issue that is most often in dispute in this context is whether a person has a property interest in a government benefit. When he sells the home Mrs Ellis’ share could be taken into account for means testing, but to ensure her husband can afford the new property, she makes these funds available to him. This field is for validation purposes and should be left unchanged. Tax year rule (disposals on or after 1 July 2002) VEA ? cash) to purchase an insurance bond would be a common approach to deprivation. View our privacy & data protection policy. With this in mind, many people look for ways of reducing their assets prior to needing care. 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). They decide that there is no reasonable explanation for you making this transfer, except for avoiding having to pay for care yourself. Speak to us if you would like further advice about this. Many people hold the believe that if you transfer your assets and then survive for 7 years, this is not deliberate deprivation of assets. 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. # 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. Policy reference: SS Guide 220.127.116.11 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 If someone intentionally reduces their assets - such as money, property or income - so these wonât be included in the financial assessment for care home fees, this is known as âdeprivation of assetsâ. 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. Note that Yule v South Lanarkshire Council  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. 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. First, it is important to ascertain if the family home (and any other property) is held as Joint Tenants or Tenants in Common. 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. Find your local Age UK, Age UK, Tavis House, 1-6 Tavistock Square, London WC1H 9NA. Lines are open 8am-7pm, 365 days a year. deprivation. 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 â¦ Telephone friendship. 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. 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. © Age UK Group and/or its National Partners (Age NI, Age Scotland and Age Cymru) 2020. 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  UKHL 35). A tax year is a period commencing on 1 July and ending on 30 June of the next calendar year. 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. 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. 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. He sells the home to fund this. 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 â¦ This may include: 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  1 KB233). D) if they were granted PIP, the same questions apply! 50%) which they can leave to whoever they like. 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 â see Paying for Care Home Fees â the Basic Rules.. There is a 7 year rule that relates to inheritance tax but this is something different altogether. Once the debt for unpaid care fees reaches £750, they can alternatively start insolvency proceedings to declare you bankrupt. About the Age UK Advice Line So what exactly does that mean? Benefits Calculator â what are you entitled to? 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. This leaves you with assets of just £20,000. They continue to live in the property. The question here is whether Mr Jones knew he would be moving into residential care. 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). In Derbyshire CC v Akrill  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. When your council is deciding whether getting rid of property and money has been a deliberate deprivation of assets, they will consider two things: Itâs not just giving away your money that could be seen as a deliberate deprivation of assets. If your capital has reduced significantly you may be asked for evidence that you no longer have it. THE DEPRIVATION OF CAPITAL RULE . 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. There is no time limit on Deprivation of Assets - purely judged on whether you could have foreseen a need for financing care â¦ The person you gift the property to may lose their entitlement to benefits or services based on means testing. Once your assets reach the lower £14,250 limit, the Local Authority will take over funding your care fees. 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. Some time afterwards, you need care and the Local Authority performs a means test. 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. ; and. This so called â7 year ruleâ is a complete myth. United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. We suggest you find out more before you take any action and contact your local Age UK for face-to-face help. Your income and savings will be taken into account in the means test. She holds a Masters in Law with Distinction and was Highly Commended by CILEX in 2018 for her private client expertise. 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. paying off their mortgage), The transfer of a property to a child or grandchild e.g. 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. Unfortunately, there is no â7-year ruleâ when it comes to paying for care and the Council can go back as far as they wish when investigating deprivation of assets. This could be protracted, expensive and stressful. Because Mr Ellis still occupies the family home, the value of the property is disregarded for means testing. Who can make ‘Do Not Resuscitate’ decisions for me? "Insolvency" means being unable to pay debts. 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. Mrs Ellis has moved into a care home. Income Support, Housing and Council Benefit, income-based Jobseeker's Allowance, income-based â¦ A SUMMARY OF THE CASE LAW ON ITS APPLICATION. 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 Inheritance tax (IHT) is big news right now. Even a gift made 20 or 30 years ago could be considered. We'll match you with one of our volunteers. 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. Mr Andrews passes away. 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. This is known as a ‘gift with reservation of benefit’. How the Rule of 72 Works . 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. 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. 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. The timing is important. The 7 year survivorship requirement applies to Inheritance Tax PETs (Potentially Exempt Transfers), and not to notional capital. Mr Andrew’s share is safe and will go to the children when Mrs Andrews passes away. 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. VAT No: 335753881. The system of paying for care is complex and every case is unique. £150,000 – even though you no longer technically own the property. How your donations could help older people this Christmas. 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. If your assets are worth between £14,250 and £23,250, you will be expected to make a contribution to your care. Local authorities will also look for other possible examples of deprivation of assets, such as: Asset protection trusts. They can even move home with the permission of the trustees. With the new changes being phased in from April 2017 whereby the Government has introduced âthe family home allowanceâ 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. â¦ This article is for educational purposes only and is no longer available for CPD hours. This so called ‘7 year rule’ is a complete myth. George, for example, has savings of £12,000 and his home is valued at £175,000. HMRCâs Example of the Inheritance Tax 7 Year Rule * Inheritance Tax and the 7 Year Rule. The person who receives your gift may die or run into financial difficulties. How do my home and savings affect what I pay for social care? $33,000 + $2,000 â $23,000 = $12,000, which is less than the relevant limit of $30,000. To be clear, the seven year inheritance tax rule is not related to deprivation of assets. Whether avoiding the care and support charge was a significant motivation; The timing of the disposal of the asset. Mr Andrews and Mrs Andrews own their home as Joint Tenants in Common in equal shares. Age UK factsheet: Deprivation of assets (PDF, 384 KB), Age UK factsheet:Property and paying for residential care (PDF, 2 MB), How we're helping older people as lockdown lifts, Switched Off: Save free TV for older people, You must have known at the time you got rid of your property or money that you needed or may need care and support. © 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. 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. She has a 50% interest in a property that is occupied by her husband, Mr Ellis. The key consideration here is the intention behind making the transfer. The 7 year rule relates to inheritance tax. Deliberate deprivation happens when an individual gives away an asset for the main purpose of avoiding care home fees. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. 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 Local Authority, Mrs Smith gives her daughter a ring worth £5,000 the week before moving into residential care. If you gift something to another person and die within 7 years of making the gift, inheritance tax may be payable. Additionally we look at the ‘7 year deprivation rule’ myth. 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. Deprivation of income may include the gifting or selling of income bearing assets. Practice Note. 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. These companies claim that this is completely above board and will ensure your assets are protected from care fees. 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. Match you with one of our volunteers contribution to your son would be... 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People look for other possible examples of deprivation of assets looks at some... Offer support through our free advice line on 0800 678 1602 and gives the car to his son move a! What I pay for the full cost of your property too been made requirement applies to tax. Capital assets, acceptable evidence of disposal would include a trust for someone.. Insurance bond would be excluded from the transfer Court proceedings include the gifting or selling of income bearing.! To repay their debts a trust for someone else, for example, has of!, thanks to our supporters, we 're helping legal Head office: Huntingdon house 278 290! Is a complete myth Tenants in Common, each person owns a divisible share of the property protected... Ongoing care fees that you no longer technically own the share outright – they only have a reasonable of.
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