According to a recent article posted on the BBC website Social care: MPs back change to funding cost cap in England according to an endorsed plan by The Commons, means tested council support programs are soon to be halted and are going to be replaced by a lifetime limit of £86,000 on costs. While the cap covers personal expenses, care home fees are not part of it as yet.
However, under the broader spectrum of the UK Government’s social care plan, the following changes are expected from October 2023 onwards:
- Individuals with assets below £20,000 will not have to contribute towards care home fees. They may be required to contribute from their incomes, if they have any (incomes include state benefits or allowances)
- Individuals with assets worth more than £100,000 will not be considered for any state help and will be expected to bear care home fee through self-funding
- Individuals with with assets between these two extremes ie £20,000 to £100,000 will be eligible for council help but will be required to pay £86,000 to reach the upper limit cap
What Is The 6 Month Rule Regarding Deprivation Of Assets?
According to the Health and Social Services and Social Security Adjudications (HASSASSA) Act 1983 quoted in this document titled Deprivation of assets if a care home claimant is found to have gifted assets to someone within six months of needing care home facility, local councils have the authority to recover the assets from the recipients and use them to cover the costs of the claimant’s care.
However, if the deprivation of assets can be proven, yet it does not fulfill the six month rule, local authorities may then seek the support of local courts by using the Insolvency Act. Due to limited budgets available at the hands of local authorities, this is a less likely course of action pursued by them.
Should the claimant have already moved into the care facility and there has been a lapse of time when the discovery of deprivation of assets is made, the claimants will be required to pay the differential in the amount due upon them had their assets been taken into consideration when the initial assessment was made.
In certain cases when deprivation of assets has been proven, social services have been known to recover the assets transferred to a family member and at times, they have refused to cover care home costs.
If the claimant has no savings or capital yet they are a homeowner, the council will consider recovering the expense from the proceeds of the sale of the house. This is called a deferred payment and may be considered when the applicant has a capital of around £23,250 (excluding the value of their house).
Additionally, if the disposing of assets prior to care home residency is merely a coincidence and a care home claimant finds themselves incorrectly charged with deprivation of assets, they may challenge the decision of local authorities and file for an appeal. Some key facts and a list of suggested advisors are available here: Factsheet 40 – Deprivation of assets in social care
For a detailed view of the topic, let’s explore the following topics:
- What Is The 7 Year Rule Regarding Deprivation Of Assets?
- Is Deprivation Of Assets A Criminal Offence?
- What Happens When Deprivation Of Assets Is Proven?
- What Counts As Deprivation Of Assets?
- What Does Not Count As Deprivation Of Assets?
- How To Reduce Assets?
- What Is An Assets And Income Assessment?
- How Important Is A Claimant’s Property For Care Home Fees?
What Is The 7 Year Rule Regarding Deprivation Of Assets?
The 7 year rule that applies to inheritance tax is unfortunately not applicable in case of reduction of assets for care home fees. This means that when council authorities conduct a financial assessment of claimant’s investments and savings, they are not limited to a seven year period of study of reduction in assets and can investigate upto as much far back as they would like to.
However the 7 year rule generally states that if someone has gifted their property or a part of it, no inheritance will be applicable on it after a lapse of 7 years.
Is Deprivation Of Assets A Criminal Offence?
Yes, deprivation of assets is considered a criminal offence simply due to the deliberate reduction of assets by claimants of benefits, especially those who are about to apply for care home residency.
However, in order to prove that a deliberate reduction of assets has taken place, there needs to be evidence supporting that the applicant knew at the time of the said reduction of assets that they will be in need of care home residency shortly. Also, there should be no other motivation or intention for reduction of assets that may be proven with supportive evidence.
Council authorities may also apply for a judgement debt in Country Court; or in case of false declaration of financial assets in a Social Security form, the individual can be taken to a Magistrate’s Court as the act is considered as a criminal offence.
What Counts As Deprivation Of Assets?
When someone deliberately reduces their assets to avoid having to pay for care home fees and relying on the state to bear most (or all) of their care home expenditure, it is considered as “Deprivation of Assets”.
While most individuals consider that transfer of savings, selling of one’s property or gifting their home to a family member is all that counts as deprivation of assets, that is not all. Any of the following actions will be counted as deprivation of assets if it takes place within a short period of time prior to one’s claim for care home residency:
- To give away a large sum of money
- To transfer the title deed of one’s property
- To spend a large amount of money which is in contrast with the spender’s usual spending pattern
- To lose money through gambling
- To use savings in order to purchase items excluded from a means-test such as a car or jewellery
What Does Not Count As Deprivation Of Assets?
The 7 year rule that nullifies one from inheritance tax does not apply in case of deprivation of assets; enabling councils to to consider financial trends as far back as they would like to. However, according to the Guidance manual on assessment of capital, if the claimant has sold or transferred assets with the intention to:
- reduce or return the debt that they owe (either to an individual, bank or the state),
- make credit cards payments,
- pay for their mortgage,
- make payments for day to day expenses,
- improve their quality of life (for e.g by purchasing a new car or rebuilding a kitchen),
- improve their quality of health through medical expenses, or
- go on a holiday
it will not be considered as deprivation of assets.
How To Reduce Assets?
If someone wishes to reduce their assets with the aim to reduce (or completely avoid) paying for their care home fees, they can use any of the following options:
- Care Annuity: This is an insurance policy that helps to pay for long-term care home expenses.
- Deferred payment schemes: These schemes are offered by local authorities to serve as a convenient and flexible means to pay for long-term care home fees.
- Equity release: This includes the release of equity in one’s home to pay for care home fees.
- Rental income: This means to rent out one’s property with the aim to generate sufficient income to pay for care home fees,
Another option is to transfer your assets to a trust. In this case, there will be a group of individuals considered as a trust to whom the property’s ownership is entrusted with. While this is a feasible option in case of having a legal dependant or a minor who may benefit from the act, however, if it is used to simply avoid care home fees, there are many risks attached. It is advisable for claimants to seek professional financial advice prior to any decision regarding their property.
What Is An Assets And Income Assessment?
Assets and income assessment is a means-based test conducted by local councils to calculate the amount of care home fee that a claimant will be able to contribute considering their financial status, as the council will be bearing the remainder of the expenses. For this purpose, the income, savings and capital of the claimant will be taken into account.
State Benefits such as Attendance Allowance and Pension Credit will be counted as income. However, in the case of Disability Allowance, there will be no accountability for the same.
Based upon the financial assessment of claimants, they will then be categorised into one of the following slots so that local authorities may decide upon the claimant’s contribution towards their care home fee as well as the amount due on the state:
- If someone has savings over £ 23,250, the claimant will have to bear the entire cost of the care home fees
- If someone has savings of £14,250–£23,250, the claimant will have to contribute most of their weekly income towards care home fees. They will also pay an assumed extra amount of £1 per £250 of capital that they have
- If someone has savings below £14, 250, the claimant will not be required to pay for their care home fees from this amount and will have to pay from their weekly income.
How Important Is A Claimant’s Property For Care Home Fees?
One’s home is considered to be the most important part of capital when budgeting care home fees. While the residential property owned by a claimant is considered as capital, however, in case their house is occupied by any of the following, residents, the premises may not qualify to be accounted for in a means test:
- spouse/civil partner/unmarried partner
- a close relative over 60 years of age
- a close relative below 16 years of age (legal dependant)
- former spouse or partner if they are a single parent
This is called property disregard.
FAQs: What Is The 6 Month Rule Regarding Deprivation Of Assets?
How far back can deprivation of assets go?
There is no time limit on how far back council authorities can go for your means test prior to confirming your eligibility for care home fees. Unlike inheritance tax, deprivation of assets does not reduce accountability after a lapse of 7 years.
What constitutes deprivation of assets?
When someone deliberately reduces their assets to avoid having to pay for care home fees and relying on the state to bear most (or all) of their care home expenditure, it is considered as deprivation of assets.
Is deprivation of assets a criminal offence?
Deprivation of assets is a false declaration of one’s financial circumstances, hence it is a criminal offence. Whether or not a claimant faces court prosecution as a result of deprivation of assets, completely depends upon the results of the investigation carried out by local authorities, the scale and scope of the false claim, as well as the possibility of any recovery to be made.
How much can I gift my children?
Each UK citizen is allowed to receive £3,000 in the form of inheritance or gift money annually. Therefore, this is the amount that you may gift to your children; either in lump sum or over a period of time.
Can I put my house in trust to avoid care fees?
While you may put your house in trust to avoid care fees, not only will you lose a major part of your capital but there is no guarantee on the authenticity of many trust schemes. Therefore, this may prove to be a serious risk just to avoid paying care home fees.