How your inheritance could be clawed back to pay for care

Unexpectedly requiring social care can bulldoze the financial plans of even the most organised person. 

Many people in later life will be trying to balance making their pension pot and other savings last at least as long as they do, while making the most of being retired. 

Equally, many people will also be thinking about the most tax-efficient way to give money to their families before they die.

Residential care home fees can cost in the region of £40,000 per year (depending on where you live and the level of care you need), according to Age UK. The proportion you have to pay yourself will depend on how much money you have. 

These costs won’t take long to deplete your assets. Due to instances of more unscrupulous people using this as a reason to knowingly leave too little funding to cover these costs – hoping their council will cover the costs instead – local authorities have been given powers to investigate whether people’s spending and gifting has been for this purpose. 

Therefore, if you’re left with too little as a result of giving it away as part of your financial planning, it may be seen as “deliberate deprivation of assets” – and could ultimately end up in court proceedings.

Here, Telegraph Money explains the rules around when you’ll pay for care, and when gifting can backfire.

How do you pay for social care?

If you need social care, your local authority will make a financial assessment, or means test, to determine whether you can pay for it yourself, or whether the local council will need to pay towards the costs. 

It will carry out a financial needs assessment, looking into how much income and capital you have to pay for it. Capital includes savings, investments and your home, but not personal possessions. 

If you have more than £23,250 in savings, you’ll start paying the full price for your care in England – the threshold might be higher if you’re elsewhere in the UK. 

If you have between £14,250 and £23,350 you’ll have to contribute to your care costs. This will consider things like pensions, and a “tariff” income based on your capital.

If you have less than £14,250 you won’t pay a tariff income, but you’ll still need to pay from any income included in the means test. The council will pay the rest.

What is ‘deliberate deprivation of assets’?

During its assessment of your finances, a local authority will not only ask about assets you currently own, but also assets you’ve previously owned. 

This could be giving away your home, money, or any other asset, where the primary motivation in making that gift is to increase your entitlement to means tested benefits, including help with care home fees. 

If cases of this are present, then you are treated as still owning that asset.

It’s not just gifting assets that can fall under the scope; selling assets for less than their true value could also be seen as deliberate deprivation – for example, selling a property to a family member or friend for far less than it’s worth.

There is no limit to how far back the local authority can go. An urban myth says that the limit is six months, but this is incorrect. However, the longer the time between the gift, and when you need long term care, the less likely that deprivation of assets can be proved. 

If a local authority does pay out for your care costs and later rules deliberate deprivation has taken place, it has the power to claim care costs from the person the assets were transferred to. 

If it’s unable to recover the debt, it can recover costs by instituting court proceedings.

Does this mean you shouldn’t give any gifts?

Making gifts for inheritance tax planning purposes, or simply to help out your family and friends, is a perfectly legitimate way to use your money. As is going on expensive holidays while you’re still able to. 

The key to preventing any trouble when you later need to pay for care is the “primary motivation” for parting with the money or asset. 

One way to make this clear is to document why you are making these gifts. Cash gifts for example, could be accompanied by a letter to the recipient – for example, “Here is a contribution towards school fees as I do not need the money”, “Here is a gift for your wedding” etc.

If you downsize and want to give your existing house to a family member, you could make sure the solicitor documents the reason for the gift.

As budget pressures increase, more local authorities are challenging gifts. 

The Local Government and Social Care Ombudsman (LGSCO) has issued guidance for them to follow, saying that local authorities should fully explore whether there are valid reasons for making the gift, and ask for the individual’s version of events before making decisions.  

They have also said “a decision of intentional deprivation of capital requires the [person] to have had a reasonable expectation they may need to pay towards that care at the time of the deprivation”.

Tips for giving gifts safely

To avoid the local authority claiming that your previous gifts constituted a deprivation of assets, keep these tips in mind:

Preparation is vital: make sure you have valid reasons for any gifts, and document them.

If taking professional advice about inheritance tax planning or transferring your home, make sure that the reasons behind the transfers are given to the solicitor and notes are made on their files.

Ensure you are not making gifts as you start to need care. 

The reality is that very few people end up in long-term care, so it is reasonable not to expect to need funding, and to make gifts when you are fit. It is more difficult to justify making gifts when you are, say, in hospital.

If the local authority wrongly tries to claim your previous gifts are deprivation of assets, you can appeal to the LGSCO.