Avoid Care Home Fees: Deliberate Deprivation

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.  This is called “deliberate deprivation” and there are very strict rules which enable the Local Authority to pursue assets given away and bring them back into account.  These rules are designed to prevent people avoiding care home fees.

There are more myths about this aspect of Care Fees Planning than any other.  I often hear mention of various “rules” relating to time-scales since action was taken, but the reality is there are none.

The Seven year “rule”.

The most common misconception is that anything given away 7-years or more ago doesn’t get taken into account.  This is confusing Inheritance Tax (IHT) with Care Fees means-testing. Under Inheritance Tax (IHT) rules a “Potentially Exempt Transfer”, an absolute gift of an asset with no reservation of benefit, is excluded from any IHT computation on death, if it was made 7-years before death.

If there was a genuine financial planning reason for making the gift, such as IHT Planning, then the gift is also effective for Care Fees purposes, as the prime motivation was not “deliberate deprivation”.  However, the majority of individuals concerned about Care Fees do not also have an IHT problem – assets of over £325,000 for a single person or £650,000 for the surviving Spouse/Civil Partner (£425,000/£850,000 in 2017/18 if the Residential Nil Rate Band applies).  Consequently, the IHT Planning rules cannot be invoked, as there is no potential liability to mitigate. This means that if the gift doesn’t legitimately deal with a genuine IHT issue, then it may be considered “deliberate deprivation” with the aforementioned consequences.

There is no time limit for Deliberate Deprivation

If the Local Authority has suspicions about the motive behind a past transaction, they can investigate it, whenever it took place and they have wide powers of investigation.

Having said this, the longer between a transaction and the need for care arising, particularly if the Donor – the person making the gift – was in good health and not considering a foreseeable need for care, the more unlikely it is that the Local Authority can prove deliberate deprivation.  The onus of proof is upon the Local Authority

If you need to go into a home, which one would you prefer?

One of the points often overlooked is, do you really want to go into the Care/Nursing Home the Local Authority is prepared to pay for?  My Clients certainly don’t!

Will the Council pay for your care?

In Eligible Care Needs I explain that Local Authorities are being very canny in the way they interpret the Care Act and, if they don’t believe that you have Eligible Care Needs, they won’t pay for your care in any event.  Consequently, any attempt to shelter assets becomes futile.

Do you approve of aggressive tax avoidance?

In recent years, it has become socially unacceptable to indulge in aggressive tax avoidance.  Even schemes that are deemed acceptable by HMRC are frowned upon by the Media and Public alike.  Claiming a benefit – having your care paid for by the Council, for example – to which you wouldn’t be entitled if you hadn’t sheltered your assets, is the obverse of the tax avoidance coin.  If you indulge in tax avoidance, it’s heads the Treasury loses through a reduction in tax revenue.  If you indulge in a bit of benefit manipulation, it’s tails the Treasury loses through having to make a payment they otherwise wouldn’t have to.

I know it seems unfair that those who have worked and saved have to pay for their care and those who haven’t saved get their care paid for.  However, Parliament has laid out the rules for all to observe, because, if all care was free, those of us still working would be facing income tax rates of 83%, i.e., back to the days before Maggie Thatcher’s reforms!

Thinking about giving away your home?

The most common scenario I am presented with is, “I’m going to give my home to my Children”.  Don’t!  This is more fully explored in Trusts to Avoid Care Home Fees and Should I Give My Home Away to Avoid Care Home Fees?

What’s next?

If you are thinking of doing anything to divest yourself of your asset, talk to me first or complete the form below.

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About Clive Barwell

Clive Barwell is one of the most experienced and qualified financial planners working in the later life market today, he specialises in advice and guidance for the over 55s. To ask Clive a question, please email him at info@clivebarwell.co.uk. Alternatively, you can follow Clive on Twitter, connect with Clive on LinkedIn or see Clive's profile on Google+.