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. If you have income and savings of over £27,250, you will be entirely self-funding. If your savings and investments are less than £27,250 and you own a home, you will be eligible for 12-week funding and will be expected to sell your home to pay for fees. If you do not own a home, you will be eligible for funding. 

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 assets and still include the asset in its financial assessment.

When deciding whether a gift is a deliberate deprivation of assets, 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, particularly when gifting your main residence. Any 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, please contact our Tax & Succession team on 0131 228 8111.