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Swindon I frequently encounter this question, particularly among older clients, and understand their concern entirely. For most of us, our home is our most valuable asset. With the average weekly cost of residential care in the UK now £704, and nursing care £888, it’s easy to see how quickly assets we have worked hard for over a lifetime can be eroded.
In particular, demand for dementia care is growing fast. Currently, around 850,000 people in the UK live with dementia, of whom around a third (288,000) are in residential care. However, Alzheimer’s UK predicts that we will reach one million dementia sufferers by 2025.
Giving away property before death
If there is no mortgage or other debt secured upon it, nothing prevents you from giving away your house, even if you are still living in it. However, you should exercise considerable caution before doing so.
The focus of this article is the cost of care, but among the innumerable issues to consider before giving away your home are:
- future liability for Inheritance Tax.
- any immediate or future liability for Capital Gains Tax (for you or the recipient of your gift).
- loss of your primary residence exemption.
- increased Stamp Duty for the recipient of your gift.
- loss of control of the property.
- meeting maintenance costs on a property you no longer own.
- the uncertainty of what happens if the person you gift it to dies before you, gets divorced, or becomes bankrupt.
- the Department for Work and Pensions viewing your action as deliberate deprivation of assets to qualify for means-tested benefits.
Signing over house to avoid care costs
The rules governing local authority funding of care home costs are complex. But, as you would expect, they are very alert to people gifting their homes in an attempt to avoid liability.
When an application for care funding is received, the local authority will conduct a thorough financial assessment. If you have given away your home and they believe your action amounts to an intentional deprivation of assets, they can nevertheless take the value of the property into account even though you have transferred it to someone else. The same applies if you have put your property into a trust. This means you may end up paying for your care, even though you no longer have your house available to sell to fund those costs.
You should also remember that it’s not only a gift of your home that’s covered by these rules. Gifts of any other asset – savings, equities, premium bonds, art, antiques etc – can equally be deemed to amount to intentional deprivation and their value taken into account. Taking legal advice before giving away any major asset means you will be far better placed to make an informed decision.
Deprivation of assets 7 year rule
It’s commonly believed that if you gift an asset and then survive for 7 years (referred to colloquially as the deprivation of assets ‘7 year rule’), the gift cannot be considered an intentional deprivation of assets. However, this is a complete myth. The local authority can go as far back as they wish when considering whether a gift amounted to a deliberate deprivation.
Jointly owned property
One factor that people often overlook when considering their liability for care home fees is that if your partner is still living in your jointly owned home, it will not be included in the local authority’s financial means test.
