The idea of gifting assets to avoid care fees is a decision that requires careful consideration of the potential legal and financial implications.
Giving away assets to avoid paying care fees is known as ‘deprivation of assets’. If your local council believes you have deliberately given your assets away to avoid paying care costs, they may still consider those assets as ‘yours’ during their financial assessment.
In some cases, they may even be able to legally recover the costs they have already spent on your care fees. So, while transferring assets may seem like a plausible solution, it’s important to understand the legal frameworks surrounding such actions.
This guide delves into the intricacies of gifting assets and explores the potential consequences. We hope this gives you the insights you need to make informed decisions about financial planning for long-term care.
When are you responsible for paying for your own care?
In England, local councils are responsible for paying towards the cost of your care if you have less than £23,250 in savings (called the upper capital limit). From October 2025, this will rise to £100,000 in savings.
In order to determine your financial circumstances, your local authority will undertake a ‘means test’.
There are two steps to accessing social care funding:
- The care needs assessment: Requesting a care needs assessment from your local council should be your first step. It is free, and anyone can ask for one. The assessment establishes your care needs and how they can be met.
- The financial assessment: A financial assessment determines where you are responsible for contributing to the costs of your care. This assessment considers your capital (savings and assets) and income.
Care fees can be expensive, leading many people to sell their homes to fund the cost of residential or in-home care. Others may consider giving away some of their assets, often their biggest assets like residential or vacation homes, in order to fall below this threshold.
But giving away your assets in order to avoid paying care fees is only allowed in certain circumstances. There are complex rules to be aware of, and your local authority may still consider the assets as yours during their financial assessment if you don’t adhere to these rules closely.
What is deprivation of assets?
When the local authority conducts its financial assessment, it will ask you about all the assets you currently own, along with assets that you have previously owned. When the local authority suspects that someone has deliberately given away property or assets to avoid paying their own care fees, it is called “deprivation of assets”.
Deprivation of assets can take many forms. One of the most common is to give away the family home, which is often a person’s most valuable possession. But it can also include selling property at far below value or transferring property into someone else’s name.
Some examples of actions that could be considered as deprivation of assets include:
- Giving away large sums of money or expensive gifts, such as recently purchased cars or jewellery to family members or friends. Excessive gambling may also be considered.
- Gifting property away property as a gift or by transferring it into someone else’s name.
- Selling property to someone for much less than it is worth or considerably below market value.
- Putting money into a trust or employing other methods to restrict access to it.
Your local authority will seek to determine whether you give away an asset or a piece of property “deliberately” to avoid paying for your care fees. In order to determine the intention of your gift, the local authority will consider the following aspects:
- Motive: What is the reason the person gave away the asset?
- Timing: Although there is no set time limit, most local authorities do not investigate very far back. They are more likely to look at the time between the person realising they needed to pay for care fees and the disposing of assets.
- Amount: The local authority is much less likely to investigate small gifts or tokens when compared to the transfer of property or large sums of money.
Local authorities are really looking into the matter of intention. Specifically, when you made a gift, the determining factor is whether you reasonably could have anticipated the need for care.
For instance, if you were to fall ill and undergo a care assessment indicating the requirement for residential care, it may look suspicious if you later transfer your property to a relative in the following week. In such cases, the timing and sequence of events could indicate intentional efforts to reduce your assets in anticipation of potential care fees.
Do I have to sell my home to pay for care?
Your eligibility to cover your own care expenses will be determined through a means test. If you receive care at home or temporarily stay in a care home, your primary residence will not be considered as income during the financial assessment.
Similarly, if you permanently move to a care home, your home may be excluded from the means test under specific conditions.
If your move to a residential care home is permanent, your primary residence will not be considered as income if it is still occupied by:
- Your partner or former partner, unless estranged
- Your estranged or divorced partner if they are living as a lone parent
- Any relative 60 years of age or older
- A relative with a disability
- Dependent children under the age of 18
Should your property be subject to the permanent care home means test, the council must disregard it during the initial 12 weeks of your care. This grace period allows you time to make decisions regarding your property and fee payments, such as considering entering into a deferred payment agreement with the council.
If your other capital assets amount to less than £23,250, it is probable that you will qualify for council assistance with fees throughout this 12-week period.
What is the legal transfer of property?
Gifting, as a practice, may not always run afoul of deprivation of assets rules, with the crucial determinant being your intention. Making gifts for valid reasons, such as inheritance tax planning or assisting family members, is generally considered acceptable.
You may have heard of strategies such as lifetime trusts to circumvent care fees. While trusts can be valuable tools in estate planning, especially for minor, vulnerable, or disabled beneficiaries, they also serve a purpose in inheritance tax planning.
However, it is essential to note that if the motivation behind establishing a trust is to evade future care fee liabilities, there is a tangible risk that transferring assets to trustees could still be interpreted as deliberate deprivation.
Understanding the nuances and seeking professional advice is crucial to ensure that your intentions align with legal considerations and to mitigate any potential risks associated with such financial decisions.
Can a local authority recover care home fees?
In scenarios where a local authority finances an individual’s care expenses and later determines that the person has engaged in ‘deliberate deprivation’ of assets, the authority can legally seek reimbursement for those care costs.
From a legal standpoint, local authorities can initiate court proceedings to recover costs. However, it is essential for a local authority to explore other reasonable alternatives to reclaim the debt before resorting to legal action.
For the council’s decision to be deemed valid, it must be reasonable, and individuals have the right to appeal if they believe an unjust decision has been made. Should you wish to file a complaint or appeal a decision, directly contacting your local authority is advised.
Learn more about challenging a local authority decision.
Can I transfer my house to my child to avoid home care fees?
You may be considering transferring ownership of a property to loved ones in an attempt to qualify for increased social care funding for care fees. However, it’s crucial to be aware that if the local authority determines that you have ‘deliberately deprived’ yourself of assets with the intention of avoiding care fees, they possess the authority to seek reimbursement for care costs from the individual to whom the assets were transferred.
This emphasises the importance of understanding the legal implications and seeking appropriate advice before making decisions that could impact eligibility for care funding.
What is the 7-year rule for deprivation of assets?
Should you generously give someone a substantial sum of money, a property, or a comparable asset, the inheritor is obligated to pay inheritance tax if you happen to pass away within the subsequent seven years after making the gift.
This inheritance rule has led some people to mistakenly believe that deprivation of assets does not apply to property given away more than seven years prior. This is not the case. As always, it is the intention of the gift that truly matters rather than the timeline.
Potential risks of gifting property or assets
When considering the act of gifting assets, it’s crucial to recognise several significant risks beyond the rule of ‘deprivation of assets.’ Once a gift has been given, it becomes irrevocable, and understanding the potential consequences is important.
1. Loss of financial security
Gifting assets poses the risk of compromising future financial security. Assets that are willingly given away one day may be essential to cover unforeseen expenses, such as relocation costs or the potential need for private care within the comfort of one’s home.
2. Sacrificing choice and financial control
Giving away your assets translates to relinquishing control and choice over one’s financial affairs. Unanticipated changes in situations or relationships may leave an individual vulnerable, with limited options if someone else controls their finances or physical assets.
3. Unforeseen consequences of property gifting
Gifting a house with the understanding that it remains the giver’s residence during their lifetime can lead to unexpected repercussions. In cases of divorce or bankruptcy experienced by the gift recipient, the house may need to be sold to settle financial obligations, potentially leaving the giver without a home.
4. Tax implications
It is crucial to consider potential tax implications associated with gifting. Both the giver and the recipient may be liable for Capital Gains Tax if a profit is involved. This is particularly relevant for second homes that have appreciated in value.
5. Irreversibility of gifts
Once a gift is given, there is no possibility of reverting the decision. The gift is permanent. It is important to carefully evaluate the potential long-term implications and seek financial advice before proceeding with any substantial gift.
Seeking legal advice
Arranging social care, whether for yourself or your parents, can be a confusing and stressful process. The intricacies of the ‘Deprivation of Assets’ regulations may leave you feeling like you’re navigating a delicate situation.
Seeking early advice from a financial adviser is crucial, especially before considering the transfer of asset ownership to someone else. This precaution ensures that well-intentioned actions do not inadvertently lead to unfavourable consequences.
Here are some resources to get you started:
Citizens Advice provides free, confidential, and impartial advice on a wide range of legal and non-legal issues. You can even chat with an advisor online.
The Law Society represents solicitors in England and Wales. Their website offers resources for finding a solicitor, legal advice, and information on different legal areas.
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