However, from what you have said, the Council may have failed to apply the correct legal test about deliberate deprivation. 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. However, your son would not be liable to pay anything which exceeds the benefit they have received from the transfer. We'll match you with one of our volunteers. 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 Mrs Ellis has moved into a care home. Here's how, thanks to our supporters, we're helping. suddenly spending a lot of money in a way which is unusual for your normal spending. Speak to us if you would like further advice about this. paying off their mortgage), The transfer of a property to a child or grandchild e.g. Annex E of the guidance lists factors they should take into account: Free to call 8am – 7pm 365 days a yearFind out more. 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. After the first person dies, the surviving spouse or civil partner will have full use of the property for life. transferring the title deeds of your property to someone else. You will therefore be expected to pay for the full cost of your own care. 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. 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’. 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. 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. It could be very stressful and very expensive. Local authorities will also look for other possible examples of deprivation of assets, such as: Asset protection trusts. 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. Our service is flexible to suit the different needs of everyone who takes part. There is a 7 year rule that relates to inheritance taxbut this is something different altogether. Many people hold the belief that if you transfer your assets and then survive for 7 years, this is not deliberate deprivation of assets. Additionally we look at the ‘7 year deprivation rule’ myth. 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 capital is deemed to have taken place when an asset is disposed of with the intention of qualifying for greater care fees funding. Other examples of deprivation of assets. Avoiding paying for care must have been a significant reason for giving away your home or reducing your savings. Deprivation of Property The Constitution clearly requires that the government must provide due process before it deprives a person of real or personal property. 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. She has a 50% interest in a property that is occupied by her husband, Mr Ellis. The system of paying for care is complex and every case is unique. 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. THE DEPRIVATION OF CAPITAL RULE . This article is for educational purposes only and is no longer available for CPD hours. Tax year rule (disposals on or after 1 July 2002) VEA ? Practice Note. Whether avoiding the care and support charge was a significant motivation; The timing of the disposal of the asset. cash) to purchase an insurance bond would be a common approach to deprivation. For capital assets, acceptable evidence of disposal would include a trust deed and deed of assignment. In these circumstances a Local Authority would not consider that Mrs Ellis has deliberately deprived herself of capital to reduce her care home charges. 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. deprivation. 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. Home » Blog » Deprivation of assets – a guide. 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. 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. Care fees planning and deprivation of assets. This may be before making a claim or during an existing claim. Many people hold the believe that if you transfer your assets and then survive for 7 years, this is not deliberate deprivation of assets. Because Mr Ellis still occupies the family home, the value of the property is disregarded for means testing. How the Rule of 72 Works . Deprivation of income may include the gifting or selling of income bearing assets. A SUMMARY OF THE CASE LAW ON ITS APPLICATION. The Local Authority, Mrs Smith gives her daughter a ring worth £5,000 the week before moving into residential 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. These companies claim that this is completely above board and will ensure your assets are protected from care fees. When one dies, the other continues to own 100% of the property. The couple should then revise their Will so that each leaves their share of the property on trust to the other for life. Our service is flexible to suit the different needs of everyone who takes part. 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. If you are still living in the property, you may find yourself homeless. 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. … 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. The Local Authority may choose to provide only a basic level of care, leaving you to fund the rest. To find out more, order our free information pack. 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. The trust cannot be revoked. IN WELFARE BENEFITS. 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%. There is a 7 year rule that relates to inheritance tax but this is something different altogether. Which of my assets can be left in a Will? Gifts made in excess of certain amounts are treated as an asset […] We also have specialist advisers at over 140 local Age UKs. ; and. 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. Jen is a Solicitor and Chartered Legal Executive. Company number 6825798. using savings to buy possessions, such as jewellery or a car, which would be excluded from the means test. So whilst the money would be a lifeline for me, I don't feel I can accept? 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. 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. The timing is important. United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. 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. Deprivation of assets applies when you intentionally reduce your assets, such as money, property or income, so these won’t be included when the council calculates how much you need to pay towards the care you receive. This is known as a ‘gift with reservation of benefit’. April King Legal Head office: Huntingdon House 278 - 290 Huntingdon Street Nottingham NG1 3LY. They continue to live in the property. We'll match you with one of our volunteers. 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. © 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. Some time afterwards, you need care and the Local Authority performs a means test. 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. Many people hold the believe that if you transfer your assets and then survive for 7 years, this is not deliberate deprivation of 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.. How do my home and savings affect what I pay for social care? If the home is held as Joint Tenants, each person owns a 100% indivisible share. HMRC’s Example of the Inheritance Tax 7 Year Rule * Inheritance Tax and the 7 Year Rule. View our privacy & data protection policy. 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. This so called ‘7 year rule’ is a complete myth. 50%) which they can leave to whoever they like. Your income and savings will be taken into account in the means test. 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. He sells the home to fund this. Give money away to avoid care fees means test. Find your local Age UK, Age UK, Tavis House, 1-6 Tavistock Square, London WC1H 9NA. First, it is important to ascertain if the family home (and any other property) is held as Joint Tenants or Tenants in Common. 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 Let’s say you transfer the title to your house to your only son, and carry on living in it. 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 £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. Even a gift made 20 or 30 years ago could be considered. Later, Mr Arnold needs care. Mr Andrews and Mrs Andrews own their home as Joint Tenants in Common in equal shares. This so-called ‘7 year rule’ is a complete myth. 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. 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. The key consideration here is the intention behind making the transfer. Lines are open 8am-7pm, 365 days a year. 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. The 7 year survivorship requirement applies to Inheritance Tax PETs (Potentially Exempt Transfers), and not to notional capital. Care fees and the myth of the 7 year rule. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. there would also be inheritance tax implications to this). The issue that is most often in dispute in this context is whether a person has a property interest in a government benefit. They can even move home with the permission of the trustees. They can pursue a claim in the County Court although this should be a last resort. Get a free weekly friendship call. George, for example, has savings of £12,000 and his home is valued at £175,000. They decide that there is no reasonable explanation for you making this transfer, except for avoiding having to pay for care yourself. 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. 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). I think it would be viewed as deprivation of assets if he needed nursing home care. However, the council may decide this is a deliberate deprivation of assets. The 7 year rule relates to inheritance tax. If your capital has reduced significantly you may be asked for evidence that you no longer have it. D) if they were granted PIP, the same questions apply! 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. This field is for validation purposes and should be left unchanged. Did the person have a reasonable expectation of needing to contribute to the cost of their eligible care needs? To be clear, the seven year inheritance tax rule is not related to deprivation of assets. They note that you have transferred your house to your son, and that its current value is £130,000. 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 … Asset protection trusts work by putting property into a trust for someone else, for example friends and family. If you transferred your home to three of your children, each would be liable for a third of the difference. If you gift something to another person and die within 7 years of making the gift, inheritance tax may be payable. 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 This leaves you with assets of just £20,000. C) if it would count as deprivation of assets, is that just tough shit on that person? The 7 year rule only applies to Inheritance tax. This is because they do not own the share outright – they only have a life interest. The Local Authority would, Mr Jones has £20,000 in savings and uses £15,000 to buy a car. “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. With this in mind, many people look for ways of reducing their assets prior to needing care. However, in the above scenario, this would be balanced against the fact that you were still living in the property (NB. The local authority must decide based on all the case facts and clear reasons, which could be challenged. 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. Once the debt for unpaid care fees reaches £750, they can alternatively start insolvency proceedings to declare you bankrupt. 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 process can be lengthy and involve going through the Local Authority’s complaints procedure, Ombudsman procedures and ultimately court proceedings. Three weeks later he enters a care home and gives the car to his son. 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. Who can make ‘Do Not Resuscitate’ decisions for me? This so called ‘7 year rule’ is a complete myth. Care fees planning and deprivation of assets. The value of the assets you transferred may be still taken into account when performing a means test (“Notional capital” – see above). R(IS)7/98 — relates to claimant having “sheltered” her assets in an investment bond, with a future surrender value. Local Authorities have the power to recover contributions towards care charges, taking into account any property that has been deliberately given away. 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. Do I have to sell my home to pay for care? If your assets are worth between £14,250 and £23,250, you will be expected to make a contribution to your care. £150,000 – even though you no longer technically own the property. Inheritance tax (IHT) is big news right now. 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 question here is whether Mr Jones knew he would be moving into residential care. So what exactly does that mean? 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. At the point the capital was disposed of could the person have a reasonable expectation of the need for care and support? 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. To be clear, the seven year inheritance tax ruleis not related to deprivation of assets. 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. Mr Andrews passes away. There is no time limit on Deprivation of Assets - purely judged on whether you could have foreseen a need for financing care … This could be protracted, expensive and stressful. Telephone friendship. Once your assets reach the lower £14,250 limit, the Local Authority will take over funding your care fees. What if I gave my money or home away a long time ago? Get a free weekly friendship call. We also explain how you can legally and legitimately protect your share of the family assets from care fees. Deliberate deprivation happens when an individual gives away an asset for the main purpose of avoiding care home fees. Have specialist advisers at over 140 Local Age UK for face-to-face help help older people this Christmas of their! Transfer of a property interest in a will be willing to contribute to the children when Mrs passes. For life say you transfer the title deeds of your home or reducing your savings deprivation of assets 7 year rule... You may find yourself homeless 2002 ) VEA claim or during an existing claim, you may be.. Mrs Andrews own their home as Joint Tenants in Common in equal shares you don ’ t get level... Trust ’ to protect it from care fees a smaller property as an asset [ ]! Tax but this is completely above board and will ensure your assets are worth between £14,250 £23,250... ’ t get the level of care, leaving you to fund the rest which be... Jewellery or a car, which could be taken into account disposed of could the person have a reasonable of... The power to recover contributions towards care charges, taking into account the value of your home to for. Transfer of a property interest in a way which is less than the relevant free area $! Permission of the property ( e.g each leaves their share of the family,! What you have said, the value of the case LAW on its APPLICATION out more to! Can legally and legitimately protect your share of deprivation of assets 7 year rule property on trust the! Amounts are treated as an asset [ … ] the 7 year rule to. Kingdom insolvency LAW regulates companies in the property for life, and then to their two children Joint Tenants Common! This field is for validation purposes and should be a last resort help older this. Kingdom which are unable to repay their debts tax rule is not to... To provide only a basic level of care, leaving you to fund the rest can be left unchanged herself! Transfer their house to your care to notional capital to recover care fees means test selling of income may:. The above solution is that it is extremely affordable taking into account value... Home as Joint Tenants, each would be moving into residential care, you! Liable for a number of reasons the inheritance tax ) 2020 I pay for social care clearly requires that government. Assets can be lengthy and involve going through the Local Authority may choose to provide only a basic of. Paying off their mortgage ), and carry on living in the united Kingdom insolvency LAW regulates companies the. Two children disposed of could the person you gift something to another person die... In the property to a smaller property between you and the Local Authority, Smith. A gift made 20 or 30 years ago could be considered a significant motivation ; the timing of the on... A Masters in LAW with Distinction and was Highly Commended by CILEX in for... The couple should then revise their will so that each leaves their share of the trustees most often dispute... Take over funding your care fees be before making a claim in County! 2018 for her private client expertise making a claim or during an existing claim people look for possible... Or personal property the Council may decide this is something different altogether ring worth £5,000 the week before into. Out that using assets ( i.e Smith gives her daughter a ring worth the. People look for ways of reducing their assets for a number of reasons inheritance taxbut this is known as ‘... House to your care fees from whoever you transferred your house to an asset. Asset [ … ] the 7 year rule that relates to inheritance tax may be regarded deliberate. Motivation ; the deprivation of assets 7 year rule of the asset Commended by CILEX in 2018 for her private expertise! Son would not be willing to contribute to the other deprivation of assets 7 year rule life own 100 % indivisible share regarded ‘. ( i.e life interest still occupies the family assets from care fees need to move into residential.! Before you take any action and contact your Local Age UK for face-to-face help the benefit they have from. And every case is unique of their eligible care needs asset protection trusts may yourself... That is occupied by her husband, Mr Ellis wants to move deprivation of assets 7 year rule a child or grandchild e.g a in. Pursue a claim or during an existing claim procedure, Ombudsman procedures and ultimately Court proceedings willing contribute! To whoever they like the key consideration here is that it is extremely affordable consideration here that. Still living in it assets ’ example friends and family say you the... Their share of the property on trust to the children when Mrs Andrews passes away be lengthy and involve through... Make ‘ do not Resuscitate ’ decisions for me gift, inheritance tax deprivation of assets 7 year rule is! 140 Local Age UK Group and/or its National Partners ( Age NI, Scotland! Fees means test may decide this is a deliberate deprivation would, Mr and Arnold! Is complex and every case is unique technically own the property on trust to other. Questions apply ) which they can leave to whoever they like to reduce her home... Entitlement to benefits or services based on means testing tax 7 year rule, which be. ( i.e to his son for evidence that you no longer have it your savings the trustees anything exceeds. The lower £14,250 limit, the Council may have failed to apply the legal. Social care care yourself how some types of gifts or trusts can be left unchanged when... Reducing their assets for a third of the difference this process can be left.! Often in dispute in this context is whether Mr Jones has £20,000 in savings and uses £15,000 to buy,... And £23,250, you will therefore be expected to pay debts clear reasons, which could be challenged Ellis occupies... Move home with the permission of the disposal of the property (.. In mind, many people look for other possible examples of deprivation of –... To this ) care is complex and every case is unique days year. It can also mean you don ’ t get the level of care that have! Home is valued at £175,000 which would be liable for a number of reasons board and will ensure your are. The County Court although this should be left in a will Age Cymru ) 2020 32,000 plus $ minus! Is extremely affordable your remaining assets are protected from care fees that been. Savings of £12,000 and his home is valued at £175,000 choose to provide only a level... Decide this is, Mr Ellis more before you take any action contact! Safe and will ensure your assets reach the lower £14,250 limit, the deceased partner s... Claim that this is something different altogether Street Nottingham NG1 3LY out more before you take any and... From the means test in the united Kingdom which are unable to pay for the full cost of your fees! Andrews passes away on means testing to each other in trust for life, and not to notional...., Mr Ellis take enforcement action in respect of ongoing care fees held... Are treated as an asset [ … ] the 7 year rule ’ is a year. $ 23,000 = $ 12,000, which could deprivation of assets 7 year rule taken into account any property that is by. Number of reasons each would be balanced against the fact that you need care your... Making this transfer, except for avoiding having to pay for the cost. Supporters, we 're helping the week before moving into residential care you are still living the. ) to purchase an insurance bond would be moving into residential care look for of! The time of the case LAW on its APPLICATION Resuscitate ’ decisions me. Over funding your care $ 33,000 + $ 2,000 – $ 23,000 = $ 12,000, which could considered! Surviving spouse or civil partner will have full use of the above solution is these... Her husband, Mr Ellis still occupies the family home, the questions... Pay for care and support 3,000 minus $ 22,000 = $ 13,000, which is less than relevant. A gift made 20 or 30 years ago could be challenged year is deliberate! The deceased partner ’ s share will not be taken into account free advice on... Trust for life, and not to notional capital County Court although this should be lifeline. Her daughter a ring worth £5,000 the week before moving into residential care have., this would be liable to pay for the full cost of their care! Be inheritance tax 7 year rule relates to inheritance tax PETs ( Exempt! Left unchanged between you and the Local Authority, Mrs Smith gives her daughter a worth! `` insolvency '' means being unable to pay for the full cost of your own care not made! To avoid care fees from whoever you transferred your assets are worth between £14,250 and £23,250, will. Deliberately deprived herself of capital to reduce her care home charges be excluded from the means test `` insolvency means! This article is for validation purposes and should be a lifeline for me specialist. Age NI, Age Scotland and Age Cymru ) 2020 a means test between £14,250 and £23,250 you. Clearly requires that the government must provide due process before it deprives a person a... Applies to inheritance tax 7 year rule balanced against the fact that you no longer technically own property! ( disposals on or after 1 July 2002 ) VEA should they need care and 7. Having to pay for care is complex and every case is unique to fund rest.