by Eleanor Picken, Trainee Solicitor
According to a 2017 census there were over 31,000 elderly residents living in care homes in Scotland. As the demand for care increases, so do concerns about the payment of care home fees. A recent statistic suggests that care homes cost an average of £29,270 per year, and this can go up to as much as £39,000 per year if further care is required. More than ever, it is important to know your way around the regulations to ensure that you and your family are best placed to deal with care fees should they arise.
If your local authority assesses you as needing social care, it will do a means-tested financial assessment to calculate how much you should pay towards fees. Your income and savings, and whether you own a home will be taken into account. From Monday 8 April 2019 the upper capital limit is £28,000 meaning that if you have capital assets over £28,000, you must be self-funded. If you have money to pay for your care home fees other than from selling your home, you can use that. If not, you may need to sell your home to pay for your care, but there are limited circumstances in which your house will not be included in the financial assessment.
Deprivation of capital
In later life, many people consider gifting their home or money to family in order to reduce their estate for inheritance tax purposes, or simply because they do not have a use or a need for their assets anymore. Where someone makes such a gift and then enters a care home, the local authority may view this as a deliberate deprivation of capital and still include the capital asset in its financial assessment.
When deciding whether a gift is a deliberate deprivation of capital, the local authority will consider when the gift was made and why. In Yule v South Lanarkshire Council 2001 SC 203, Mrs Yule gifted her home to her granddaughter 16 months before going into a nursing home. Taking into consideration Mrs Yule’s age and worsening health, the local authority concluded that the gift was made in contemplation of a future need for care and was principally for the purpose of reducing her exposure to care home fees. In situations such as this, the local authority can treat the gifted asset as ‘notional capital’, ie still being owned by the transferor. Mrs Yule was therefore treated as still owning the house when assessed for care fees.
There is a common misconception that a local authority will only look back at transfers made within seven years of the transferor going into care. It is true for inheritance tax purposes that gifts made within seven years of death will be taken into account when calculating how much inheritance tax is due on the deceased’s estate. However, in Yule it was decided that there is no time limit on how far back a local authority can look to establish deliberate deprivation of assets. If there is a clear intention to avoid or reduce care home fees, and a foreseeability of a future need for care, the timing of the gift will become irrelevant.
A fact often overlooked is that a local authority can hold a transferee personally liable for any care home fees that cannot be met by the transferor. If you gift an asset within six months of going into care and your remaining assets are then insufficient to pay for your care, the transferee could be held liable for payment of your care fees. The transferee will be liable for the difference between the amount now being assessed as due and the amount which the local authority actually received. However, the transferee’s liability will not exceed the benefit they received from the gift.
If the transfer took place more than six months prior to the entry to care and there is evidence of an intention to avoid paying care fees, the value of the transfer of assets cannot be reclaimed by the local authority, but it will be treated as notional capital, meaning that you will receive less funding. The actual assets could, however, potentially be reclaimed in insolvency proceedings.
There are therefore many issues to be considered when making gifts, and any tax liability, while not covered here, would also need to be taken into account. Advice should be sought before taking action, and gifts should be made at a time when you are fit and well, and there is no contemplation that you might soon enter long-term care.
If you need further advice on care home fees or related issues, please contact our Tax & Succession team on 0131 228 8111.
This blog post is intended as a brief commentary on care fees and lifetime gifts. No responsibility can be accepted for any action taken in reliance of this note and specialist advice should be taken in every case. Turcan Connell would be happy to provide such advice. All information provided is based on our understanding of current legislation which is subject to change.