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April 2021

Long Term Care and The Family Home

Please note that the details in this briefing should be read in conjunction with our Long Term Care Guide.

The funding of long term care costs is a very emotive issue of course and successive governments have ordered reviews before deferring any decisions. The current government suggested that it would provide a template to solve the issue but that was before coronavirus struck, and given the effects on debt and the economy it is very hard to see that we shall see care funding rising to the top of the agenda soon.

Sources Of Help In Meeting Costs

The costs of meeting care often have to be met by the individual following care and financial assessments – see the Guide. Because the family home is often our largest asset, it is natural for us to look at ways of trying to safeguard it from being included in any financial assessment.

Before rushing headlong into decisions with regard to trying to protect the family home (which can involve high costs and may not work anyway), the issue of funding more generally should be considered taking into account your overall circumstances. Despite what we hear, there can be considerable help available from the State which can combine to reduce expected costs, or even eliminate them in certain circumstances:-

  • Care assessments can meet some of the cost, and particularly for severe care cases who may qualify for continuing care as NHS patients which is fully funded in any event.
  • Ensuring that all benefits and allowances are claimed such as attendance allowance and registered nursing care costs.
  • Your savings and investments.
  • Your income from pensions and other sources.

This briefing however concentrates on the family home issue. As anyone with assets over £23,250 including property can be expected to meet the cost of care in full through the means test assessment, it is easy to see that owning your home is the main reason why people fail to qualify for support with long term care costs, and therefore why people are interested in trying to shield their home from care costs. So, what are the rules?

When Is A Property Excluded In The Care Funding Assessment?

A property can be excluded from the means test if it continues to be the home of anyone else, which can include:-

*  A spouse or partner

*  A relative over 60 or disabled

*  A minor under 16 who is dependent on the person in care

*  A separated lone partner with responsibility for a minor

*  In some circumstances, someone who gave up their own home to look after the person now in care.

If it is agreed that the property must be sold to help with the cost of care, there may be some breathing space through the 12-week property disregard. Provided other assets fall below the upper capital limit, the local authority should pay care home fees for up to 12 weeks to allow time to sell the property, although the authorities will take the individual’s pension income (apart from the Personal Expenses Allowance).

If the property remains unsold after 12 weeks, the local authority can continue to pay the fees under a deferred payment agreement, but will seek repayment of these costs when the property is sold or the resident dies. To be eligible, savings need to be below £23,250, you are having difficulty in selling the property or choosing not to sell, or have a friend or relative living in the property who is not covered by a mandatory or discretionary property disregard as itemised above. A local authority/council must offer you a deferred payment agreement in some circumstances, but they must also ensure that they can get the money back, so will consider each case individually.

So, to the main part – protecting the family home.

Can You Avoid Selling Your Home To Meet Care Costs?

The common question: “How can I avoid selling my home to pay for long term care?”

The Local Authority Powers

The main thing to note is that, in assessing the contribution you need to make to your care costs, local authorities are not daft. When assessing an individual’s means to meet care costs, the authorities are wise to attempts to gifting a property to children or putting it in trust. Anything you do to try to protect the home from being assessed can be scrutinised by the local authority in terms of their “Deliberate Deprivation of Asset Rules”. Authorities can “look through” any arrangements you may make to secure your assets to determine whether the prime motive was to avoid paying care fees, and can then pursue the recipients to reclaim the proceeds.

A local authority will believe that a deliberate deprivation of assets has occurred if there was an intention that needing care was the main criterion for taking any action, and have the power to recover any gifts made (for example the family home) to children or anyone else, either directly or through the courts.

In brief, no matter what action you take (see below) you will probably never be sure that the action will ring-fence your home from care costs.

Does It Matter How The Property Is Owned?

Probably. Most homes are owned as joint tenancies, so that on death the property is owned outright by the survivor. You can change ownership to “tenants in common” so that both parties own half of the property. Should either party need long term care, the other is entitled to remain in the property in any event, as noted above. On death of one of the partners, his/her share passes to the beneficiaries, which could be children for example. Should the survivor then need long term care, it is unlikely (although possible) for a local authority to take the value of the property into account since one half is owned by beneficiaries following first death, and the value of the remaining half is probably nil – who would want to buy half a house? At worst, only half of the value of the property can be taken into account.

Clearly, this type of planning would need to be conducted well before care was needed or thought may be needed, to avoid the “deprivation of capital” rules mentioned above.

Putting The Property Into Trust - Asset Protection Trusts

“I’m OK, I’ve put my house into an asset protection trust so the local authority can’t get hold of it”. This can be far from the truth sadly.

The intention here is to transfer the house into a trust so that technically you no longer own it, and therefore that the local authority cannot take it into account in determining whether you should pay some or all of the care costs.

In practice, it is unlikely to work, especially if the significant motive in transferring the property into trust was to put the value beyond the reach of assessment for care. The arrangement is more than likely to fall under the “Deliberate Deprivation of Assets Rule”. The local authority simply has to demonstrate that it is likely that you knew at the time of setting up the trust that you may need care in the future – there is absolutely no time limit. If that evidence exists then no matter how long the trust has been set up, it will be deemed irrelevant. There has to be a very strong alternative reason for putting the house into trust in the first place, and it is hard to find one. It is certainly not useful in saving Inheritance Tax for example (see out “Inheritance Tax and The Family Home”).

In fact, there are strong reasons not to put your property into a trust:-

  • Asset Protection Trusts can involve high legal costs – for something that may not work.
  • The local authority can impose a legal charge on the property even if it is no longer officially in your name, or even force a reversal of the transfer into trust.
  • The house ceases to be your property, so:-

- If you want to move home for example, the Trustees must agree.

- If you want to take an equity release mortgage to raise some capital then this would probably not be                               possible as you do not own the property or have equity in the property.

- There will be Capital Gains Tax payable when the property is sold by the Trust as you have ceased to own it.

  • If the value of the property exceeds the Inheritance Tax Nil Rate Band (£325,000) then there can be an immediate tax charge for Inheritance Tax when putting it into trust.
  • A trust involves its own taxation regime with potential Inheritance Tax charges on each 10th anniversary and when the property is distributed to beneficiaries.
  • If the trust owns the property then your estate could end up paying more Inheritance Tax than otherwise as it will not qualify for the Residence Nil Rate Band.

A possible solution may be to put the house into an Interest in Possession Trust with the children or grandchildren absolutely entitled to the trust proceeds on death, but even this would not resolve all problems.

Gifting The House To Children

It is sometimes believed that if you give away your house to children then you are reducing your assets and so increasing the chances of a local authority paying any care fees needed. Some also believe that this action reduces their estate for Inheritance Tax purposes. Neither is likely to be the case. With regard to care, as explained above a local authority can “look through” the arrangement and decide that it falls foul of the deliberate deprivation of assets rule.

There are other disadvantages here:-

  • This type of planning relies upon a continued good relationship between you and your children. Any breakdown in the relationship could jeopardise your continued occupation. The children could sell their share of the property, or could even choose to move in - not perhaps what you would have wished for.
  • The divorce or bankruptcy of the children could also undermine your security of tenure as their share could come under threat.
  • If the property is sold, the children would not benefit from Capital Gains Tax private resident relief on their share on the basis that they did not live there, so any gain would be taxable at the residential property rates of 18% and/or 28%.
  • The gift will be a chargeable transfer that uses some or all of your nil rate band for Inheritance Tax purposes.

Planning

Any planning should be undertaken with eyes wide open and a flexible approach should be adopted. All too often the focus is trying to protect the house but even if successful this can result in a much reduced choice of care home. Many people say that they don’t care which home they go into should they need care….until they actually need care.

You should also bear in mind that the timing of any action undertaken is key. The closer to the time care is needed, the more likely that a local authority will consider whether a deliberate deprivation of assets is the prime motive.

The main planning aspects to consider are:-

  • What help are you likely to receive from the State if care is needed?
  • What income do you have or are likely to have from pensions and investments?
  • Is there likely to be any family contribution?
  • Your savings accounts and investments – can these be restructured to provide income?
  • Consider Investment Bonds which are a disregarded asset (although any withdrawals from them can be taken into account in any assessment).
  • Putting investments into trust can provide protection but only where the timing is right and motivation clear.
  • Immediate care annuities can be considered for lump sums – see the Guide attached.
  • Separating the home ownership into tenants in common.
  • Equity Release – as long as someone is still resident in the property, this can release funds whilst still allowing the home to be retained, but it still means that the house has to be sold when moving into care.
  • Letting the property rather than could deliver a regular income stream but you would need to ensure that net income after costs would be enough to cover the care bills taking into account other income sources.
  • Selling the home and trading down can help you to release a sum for investment to meet care costs if required.

There is a need to view the overall circumstances rather than concentrate on one aspect only to try to ensure the best outcome with flexibility to retain choice.

Careful advice is needed in considering any of the above, since for example gifting property outright or into trust would mean you lose access, and we recommend consulting a solicitor before taking steps.