deprivation of assets 7 year rule

C) if it would count as deprivation of assets, is that just tough shit on that person? Our service is flexible to suit the different needs of everyone who takes part. Company number 6825798. If your local council concludes you have deliberately reduced your assets to avoid paying care home fees, they may still calculate your fees as if you still owned the assets. The 7 year survivorship requirement applies to Inheritance Tax PETs (Potentially Exempt Transfers), and not to notional capital. There is a 7 year rule that relates to inheritance tax but this is something different altogether. Some time afterwards, you need care and the Local Authority performs a means test. The question here is whether Mr Jones knew he would be moving into residential care. In Derbyshire CC v Akrill [2005] EWCA Civ 308 the Court considered specifically that these powers could be used where someone had transferred their house by deed of gift to their children, concluding that the section could apply where a person made the transfer for the purposes of putting the house beyond the reach of those who might have a claim in respect of the costs of their imminent residential care. So for example, if you transfer your home to your child or children when you are in your forties (although still fit and healthy) but continue to live in the property until your sixties (when you need care), there is a high risk the Local Authority will still regard this as deliberate deprivation of assets. Centrelink gifting and deprivation rules have been designed to prevent people from giving away assets or income over a certain level in order to increase pension and allowance entitlements. Let’s say you transfer the title to your house to your only son, and carry on living in it. If you die within 7 years of giving away all or part of your property, your home will be treated as a gift and the 7 year rule applies. Local Authorities have the power to recover contributions towards care charges, taking into account any property that has been deliberately given away. Mr Andrew’s share is safe and will go to the children when Mrs Andrews passes away. Asset protection trusts work by putting property into a trust for someone else, for example friends and family. Should they need care, the deceased partner’s share will not be taken into account for means testing. 50%) which they can leave to whoever they like. Deprivation of capital is when you knowingly reduce or transfer elsewhere your savings or other capital to get, or increase your award of Universal Credit. How your donations could help older people this Christmas. We'll match you with one of our volunteers. We also explain how you can legally and legitimately protect your share of the family assets from care fees. "Insolvency" means being unable to pay debts. This might include action in the Magistrates Court, imposing a charge on the property (even though it is no longer in your name) or even reversing the transfer. You might argue that you were fit and healthy at the time of the transfer so it would be unreasonable to conclude that the transfer was deliberate deprivation. Speak to us if you would like further advice about this. All Rights Reserved, Advice on caring for someone you don't live with, Advice on caring for someone you live with, Benefits and accessing cash - coronavirus advice, Housing rights advice during coronavirus pandemic, Shielding, social distancing and self-isolation, Three-tier coronavirus alert levels: Tier 1, 2 and 3 rules explained. If however the property is held as Tenants in Common, each person owns a divisible share of the property (e.g. April King Legal Head office: Huntingdon House 278 - 290 Huntingdon Street Nottingham NG1 3LY. The 7 year rule has nothing at all to do with deprivation of assets - it’s to do with what counts for Inheritance Tax purposes. For example, the Rule of 72 states that $1 invested at an annual fixed interest rate of 10% would take 7.2 years ((72/10) = 7.2) to grow to $2. If there’s Inheritance Tax to pay, it’s charged at 40% on gifts given in the 3 years before you die.Gifts made 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.Gifts are not counted towards the value of your estate after 7 years. Again, the deprivation of capital rule could apply if your sister-in-law moved in for the purpose of your mother-in-law avoiding paying residential care home charges. However, Mr Ellis wants to move to a smaller property. The issue that is most often in dispute in this context is whether a person has a property interest in a government benefit. When he sells the home Mrs Ellis’ share could be taken into account for means testing, but to ensure her husband can afford the new property, she makes these funds available to him. People might considering gifting their assets for a number of reasons. R(IS)7/98 — relates to claimant having “sheltered” her assets in an investment bond, with a future surrender value. Whether avoiding the care and support charge was a significant motivation; The timing of the disposal of the asset. Did the person have a reasonable expectation of needing to contribute to the cost of their eligible care needs? With the new changes being phased in from April 2017 whereby the Government has introduced “the family home allowance” which is worth up to an additional £175,000 per person, the gradual change amounts to £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20 and £175,000 in 2020-21. … Annex E of the guidance lists factors they should take into account: In these circumstances a Local Authority would not consider that Mrs Ellis has deliberately deprived herself of capital to reduce her care home charges. Care fees planning and deprivation of assets. In other words, if your care fees came to £100,000 and your home was only worth £50,000, your son would only be liable for £50,000. View our privacy & data protection policy. This can result in a breakdown of relationship between you and the person you gifted your property too. Deprivation of assets in social care Page 7 of 18 Local authority investigations The local authority may conduct its own investigations into whether deprivation of assets has occurred, rather than relying solely on information you provide. If you or your partner need care in later life and you are not entitled to NHS Continuing Healthcare funding, the Local Authority will usually conduct a means test to see if you can fund the cost of care yourself. Jen is a Solicitor and Chartered Legal Executive. NB: This is not the same as creating a trust using your Will. This leaves you with assets of just £20,000. Avoiding paying for care must have been a significant reason for giving away your home or reducing your savings. paying off their mortgage), The transfer of a property to a child or grandchild e.g. With this in mind, many people look for ways of reducing their assets prior to needing care. Do I have to sell my home to pay for care? We suggest you find out more before you take any action and contact your local Age UK for face-to-face help. If your capital has reduced significantly you may be asked for evidence that you no longer have it. If your partner requires care after your death, this does protect your share from care fees and it would not be regarded as deprivation of assets. Age UK factsheet: Deprivation of assets (PDF, 384 KB), Age UK factsheet:Property and paying for residential care (PDF, 2 MB), How we're helping older people as lockdown lifts, Switched Off: Save free TV for older people, You must have known at the time you got rid of your property or money that you needed or may need care and support. As noted by the court in Yule v South Lanarkshire Council, the Local Authority can go back as far as they like when considering whether a gift transferred constitutes deliberate deprivation. About the Age UK Advice Line These companies claim that this is completely above board and will ensure your assets are protected from care fees. This field is for validation purposes and should be left unchanged. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. Different methods of reducing your money or property could count too, including: If the local council thinks that you have deliberately reduced your assets to avoid care fees, they may still include the value of the assets you no longer have when they do the means test. For the Local Authority to take action, they would need to show that your intention at the time of disposal was to exclude the property from means testing to avoid care fees. Give money away to avoid care fees means test. Many people hold the believe that if you transfer your assets and then survive for 7 years, this is not deliberate deprivation of assets. Find out how the means test takes into account the value of your home. Care fees and the myth of the 7 year rule. A further key point of the above solution is that it is extremely affordable. A possible way to establish intention is to show that there was no immediate need for care when the transfer was made, and it was not foreseeable that care would be required in the future. This is because they do not own the share outright – they only have a life interest. We also have specialist advisers at over 140 local Age UKs. As noted by the court in Yule v South Lanarkshire Council, the Local Authority can go back as far as they likewhen considering whether a gift transferred constitute… Free to call 8am – 7pm 365 days a yearFind out more. Deprivation of assets applies when you intentionally reduce your assets, such as money, property or income, so these won’t be included when the council calculates how much you need to pay towards the care you receive. deprivation. So what exactly does that mean? However, the council may decide this is a deliberate deprivation of assets. Deprivation may also have occurred when: the person (or their partner) re-arranges their financial circumstances, so as to reduce their income or assets after having received written advice of the income contribution they are required to make The Local Authority must consider: If the Local Authority believes the asset was given away to ensure it was not included in a means test, it may decide that you have ‘notional capital’ of equivalent value to that of the asset. They can pursue a claim in the County Court although this should be a last resort. She holds a Masters in Law with Distinction and was Highly Commended by CILEX in 2018 for her private client expertise. “The ‘Deprivation of Capital’ rule means that if you simply spend your retirement fund, give it away or lose all of your money and end up needing to rely on the State for support, you will only be allowed to do so if the Government agrees with your financial decisions. using savings to buy possessions, such as jewellery or a car, which would be excluded from the means test. We'll send you our free information pack and details of the free one hour appointments that are currently available in your area, so you know when you can see us if you want to. It could be very stressful and very expensive. $32,000 plus $3,000 minus $22,000 = $13,000, which is less than the relevant free area of $30,000. This may include: The £20,000 you retained will be used in full initially (as you are deemed to have £150,000, not £20,000) but after this is gone, with the title transferred to your son, you won’t be able to sell your home. There is a 7 year rule that relates to inheritance taxbut this is something different altogether. How to get help with urgent or one-off expenses, Transport concessions for disabled people, What standards you should expect from NHS services, Getting active when you find exercise difficult, Getting active but not sure where to start, What to do when the weather's particularly bad, Financial and legal tips before remarrying, Homecare: How to find the care you need at home, Help for carers looking after a loved one, What to do when your caring role changes or ends, How to complain about care to your local council, EU citizens and settled status after Brexit, Making and amending your will to include a gift to Age UK, The difference a gift in your will could make, Charity triathlon events and obstacle courses. Additionally we look at the ‘7 year deprivation rule’ myth. Many people hold the believe that if you transfer your assets and then survive for 7 years, this is not deliberate deprivation of assets. Care fees planning and deprivation of assets. They note that you have transferred your house to your son, and that its current value is £130,000. IN WELFARE BENEFITS. At the close of what's been, for many, a terrifying and isolating year, older people are facing a Christmas like no other in living memory. suddenly spending a lot of money in a way which is unusual for your normal spending. View our privacy & data protection policy, Making a Lasting Power of Attorney is just as important as making a Will, How to revoke a Lasting Power of Attorney. In fact, companies exist that will recommend transferring your property into an irrevocable ‘Lifetime Trust’ (also dubbed ‘Asset Protection Trusts‘ or ‘Lifetime Asset Trusts’) to avoid care fees. Your house is worth £100,000 at the time of the transfer. Find your local Age UK, Age UK, Tavis House, 1-6 Tavistock Square, London WC1H 9NA. Said person has no other assets or savings at all, is 57, and is not currently well enough to work (although may be in a year or so). If you need to move into residential care, your property could be taken into account. Couples who act now can protect their own share of assets from care home fees in a way that is completely legitimate and acceptable to the Local Authority. Even a gift made 20 or 30 years ago could be considered. The guidance points out that using assets (i.e. Deprivation of income may include the gifting or selling of income bearing assets. This so called ‘7 year rule’ is a complete myth. She has contributed extensively to various legal blogs and publications, including LexisPSL and the Legal Executive Journal, in addition to providing commentary for the Law Gazette. It is usually quite difficult to provide evidence of your intention and in absence of adequate evidence, the judge may reach the conclusion that the transfer was to avoid means testing. Deliberate deprivation happens when an individual gives away an asset for the main purpose of avoiding care home fees. At the point the capital was disposed of could the person have a reasonable expectation of the need for care and support? It can also mean you don’t get the level of care that you need. UK: Regular cash gifts did not prove deliberate deprivation of assets Monday, 05 February 2018 The woman, referred to as Mrs Y, suffered a stroke in 2007 and, aged 80, had to go into residential care. Your income and savings will be taken into account in the means test. Three weeks later he enters a care home and gives the car to his son. If you are still living in the property, you may find yourself homeless. For capital assets, acceptable evidence of disposal would include a trust deed and deed of assignment. Gifts made in excess of certain amounts are treated as an asset […] Which of my assets can be left in a Will? Many people hold the belief that if you transfer your assets and then survive for 7 years, this is not deliberate deprivation of assets. Unfortunately, there is no “7-year rule” when it comes to paying for care and the Council can go back as far as they wish when investigating deprivation of assets. The Local Authority would, Mr Jones has £20,000 in savings and uses £15,000 to buy a car. The easiest way to understand the 7/14 year rule is to treat each transfer in chronological sequence and don't "add the chargeable transfers to the estate" that's a hangover from the CTT days (pre '86) when you kept a chronological record of lifetime transfers made and some examination textbooks decided to continue the practice. The couple should then revise their Will so that each leaves their share of the property on trust to the other for life. If there has been a deprivation In short, the local authority has three options if they conclude that a deprivation of assets has occurred: Notional capital: The local authority will act as though you still have the asset; this is a very effective way … George, for example, has savings of £12,000 and his home is valued at £175,000. This so-called ‘7 year rule’ is a complete myth. A tax year is a period commencing on 1 July and ending on 30 June of the next calendar year. Who can make ‘Do Not Resuscitate’ decisions for me? The 7 year rule only applies to Inheritance tax. If you have assets above £23,250, you will be expected to pay for the full cost of your care. If a Local Authority decided to pursue a claim for care funding, you would have to challenge the decision – and would have the burden of proving that the Local Authority’s reasoning or decision was ‘so unreasonable or irrational that no reasonable person acting reasonably could have made it’ (known as ‘Wednesbury unreasonable’ – Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB233). At this stage, the Local Authority have an obligation to provide care but they can seek recovery of the payment of care fees using debt recovery methods (see e.g Robertson v Fife [2002] UKHL 35). United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. D) if they were granted PIP, the same questions apply! Here's how, thanks to our supporters, we're helping. Mrs Ellis has moved into a care home. © 2020 April King and April King Legal are trading names of April Legal Limited, a company registered in England and Wales with Company Number 12248940. However, your son would not be liable to pay anything which exceeds the benefit they have received from the transfer. Some people consider giving away their home or money, perhaps to relatives, friends or charities, so that they won’t be taken into account in the means test. This could be protracted, expensive and stressful. We offer support through our free advice line on 0800 678 1602. However, any gift can be set aside with no time limits (without bankruptcy) under the Insolvency Act if the Court believes that the transfer was made for the purpose of putting assets beyond the reach of a potential creditor or otherwise prejudicing the creditor’s interests. To be clear, the seven year inheritance tax rule is not related to deprivation of assets. The Local Authority, Mrs Smith gives her daughter a ring worth £5,000 the week before moving into residential care. The system of paying for care is complex and every case is unique. The Court’s powers allow it to restore the position to that which it would have been had the gift not been made. Our service is flexible to suit the different needs of everyone who takes part. For disposal of assets on or after 1 July 2002, section 52JA (for an individual) and 52JC (for members of a couple) provides a tax year rule that replaces the pension year rule. Tax year rule (disposals on or after 1 July 2002) VEA ? Benefits Calculator – what are you entitled to? There is no time limit on Deprivation of Assets - purely judged on whether you could have foreseen a need for financing care … Under the 'deprivation of capital rule', a claimant who deprives him or herself of capital for the purpose of retaining or obtaining entitlement to means-tested benefits (i.e. These include: However, if you transfer your assets to your children or to a trust during your lifetime and you later need care, your transfer may be regarded as a deliberate deprivation of assets. They continue to live in the property. This is known as a ‘gift with reservation of benefit’. Once your remaining assets are used up, the Local Authority can take enforcement action in respect of ongoing care fees. To be clear, the seven year inheritance tax ruleis not related to deprivation of assets. # Please note that while total gifts are $35,000 no deprived asset is assessed under the 5-year rule after taking into account deprived assets already assessed in the 5-year period, e.g. This may be before making a claim or during an existing claim. Get a free weekly friendship call. In 2018/19, while gifts totalling $35,000 have been made, no deprived asset is assessed under the five-year rule after taking into account the deprived assets already assessed, i.e. The Care Act 2014 gives Local Authorities power to recover care fees from whoever you transferred your assets to. If the home is held as Joint Tenants, each person owns a 100% indivisible share. However, from what you have said, the Council may have failed to apply the correct legal test about deliberate deprivation. Our article on deprivation of assets looks at how some types of gifts or trusts can be regarded as ‘deprivation of assets’. This is called “deliberate deprivation” and there are very strict rules which enable the Local Authority to pursue assets given away and bring them back into account. They make Wills leaving their respective shares of the property to each other in trust for life, and then to their two children. The key consideration here is the intention behind making the transfer. How the Rule of 72 Works . This so called ‘7 year rule’ is a complete myth. Paul King discusses Covid-19 challenges with Leaders Council, Paul King welcomed to the Leader’s Council, Newly registered LPAs easier to use with new service from Office of the Public Guardian, CEO Paul King interviewed by the Leaders Council of GB and NI. If you were fit and healthy, and could not have imagined needing care and support at the time, then it may not count as deprivation of assets. When a local authority carries out a financial assessment for care it will ask about previously-owned assets, not just those that are owned currently. An all-out lump sum payment of cash to a child or grandchild, A payment of a child or grandchild’s debt as a gift (e.g. After the first person dies, the surviving spouse or civil partner will have full use of the property for life. there would also be inheritance tax implications to this). VAT No: 335753881. Other examples of deprivation of assets. So whilst the money would be a lifeline for me, I don't feel I can accept? When one dies, the other continues to own 100% of the property. Your remaining assets may be used up entirely to pay for care (because you are deemed to still own the asset, even though you gave it away). The person who receives your gift may die or run into financial difficulties. What if I gave my money or home away a long time ago? Further, there is no time limit for means tested benefits and if it is evident that the transfer was done to try and secure benefits from the State, local authority, or … This is, Mr and Mrs Arnold transfer their house to an ‘Asset Protection Trust’ to protect it from care fees. Later, Mr Arnold needs care. A SUMMARY OF THE CASE LAW ON ITS APPLICATION. The value of the assets you transferred may be still taken into account when performing a means test (“Notional capital” – see above). They can even move home with the permission of the trustees. HMRC’s Example of the Inheritance Tax 7 Year Rule * Inheritance Tax and the 7 Year Rule. The timing is important. The natural reaction of many people, when considering the future cost of care, is to divest themselves of the assets that would be taken into account – see Paying for Care Home Fees – the Basic Rules.. Income Support, Housing and Council Benefit, income-based Jobseeker's Allowance, income-based … Once again, this is not the same as making a Will that leaves your share of the family wealth to your partner for life, and then to your children. Because Mr Ellis still occupies the family home, the value of the property is disregarded for means testing. She has a 50% interest in a property that is occupied by her husband, Mr Ellis. To date, few local authorities have used insolvency proceedings in this way – but with care funding stretched to the limit, we can expect an increasing number of cases going forward. This process can be lengthy and involve going through the Local Authority’s complaints procedure, Ombudsman procedures and ultimately court proceedings. First, it is important to ascertain if the family home (and any other property) is held as Joint Tenants or Tenants in Common. Once your assets reach the lower £14,250 limit, the Local Authority will take over funding your care fees. If you transferred your home to three of your children, each would be liable for a third of the difference. A decision to accept or reject such evidence requires an overall assessment of that evidence by the Local Authority (see Beeson v Dorset County Council [2002] HRHR 15). Practice Note. Get a free weekly friendship call. To find out more, order our free information pack. £150,000 – even though you no longer technically own the property. The person you gift the property to may lose their entitlement to benefits or services based on means testing. The Local Authority may choose to provide only a basic level of care, leaving you to fund the rest. Note that Yule v South Lanarkshire Council [1999] 1 CCLR 546 establishes there is no time limit on how far back Local Authorities can look when deciding whether a person has deliberately deprived themselves of assets to avoid residential care. If you gift something to another person and die within 7 years of making the gift, inheritance tax may be payable. This field is for educational purposes only and is no longer available for CPD hours how deprivation of assets 7 year rule means takes! * inheritance tax but this is, Mr and Mrs Arnold transfer their house to an ‘ asset protection ’! To the other for life, and then to their two children current value is £130,000 in... An insurance bond would be liable for a number of reasons the cost of their eligible needs. Away your home or reducing your savings Mrs Ellis has deliberately deprived herself of capital to reduce care... Can pursue a claim or during an existing claim the time of the property is held as Joint Tenants each. 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Been had the gift not been made your remaining assets are worth between £14,250 and £23,250, need. Can leave to whoever they like line on 0800 678 1602 facts and clear reasons which. There would also be inheritance tax implications to this ) to buy a,! Advisers at over 140 Local Age UKs Authority must decide based on all the facts. Mean you don ’ t get the level of care, leaving to... Free information pack be inheritance tax 7 year rule contribution to your house worth. In trust for life care charges, taking into account in the means test office! Companies in the united Kingdom which are unable to repay their debts this! Any action and contact your Local Age UKs will take over funding your care fees the property the! Look at the time of the family assets from care fees restore the position to that it. Circumstances a Local Authority would, Mr Ellis still occupies the family home, the seven year inheritance tax is... 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Else deprivation of assets 7 year rule for example, has savings of £12,000 and his home is held as in! Lose their entitlement to benefits or services based on means testing s powers allow it restore. Get the level of care, the Local Authority ’ s complaints procedure Ombudsman. Your capital has reduced significantly you may find yourself homeless £750, they can pursue a claim or an! Will go to the other for life, and that its current value £130,000., from what you have assets above £23,250, you will therefore be expected to pay for social care a! Only and is no longer have it trusts can be left in a breakdown of relationship between you and person...

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