Residential & Nursing Home Care Costs
The provision of care is the function of the local Social Work Department who have an obligation to assess persons in need of care and make provision for it, but are obliged to charge for the provision of accommodation. No charge is currently made for the personal and nursing care element of costs, and the payment of the accommodation element of care charges depends upon the financial circumstances of the individuals concerned.
The Social Work Department conduct a means-test to assess, in each case, the ability of the individual to pay for the accommodation portion of their care charge, and both capital and income will be taken into account. In carrying out such an assessment they will usually include the value of any house owned by the individual.
There are a number of exemptions where the value of the house is disregarded. For example if one spouse has to go into care and the other spouse remains in the house as his or her main residence, then its value is disregarded. Understandably many people would wish to avoid, in the event of them requiring care in the future, any possibility of having their house included in any such assessment, as this could mean that their house would have to be sold to pay for their accommodation costs. However, steps to sell the house would generally be taken only be if all other funds had been used.
In an attempt to avoid the possibility of the house being sold to pay for care costs, some people decide to transfer ownership of the home to a member or members of the family, typically their children. One difficulty with transferring the house is that there is what is known as the “notional capital rule” which applies when addressing eligibility for assistance with care charges.
Basically this rule means that if, in the opinion of the Local Authority, a person has deliberately transferred the ownership of their house with a view to obtaining assistance with care charges, then the Local Authority can assess them as still notionally possessing capital to the value of the house which they have disposed of. So in many circumstances they could consider that a person still notionally possess their house, particularly if the gift is not one which could help to avoid a potential Inheritance Tax liability and therefore an attempt to defeat the notional capital rule can be the only reason for the gift.
Accordingly, if a person transfers their house and subsequently requires care, they could find themselves in a situation where they do not have funds to pay for their care but the Local Authority could still refuse to fund that care on the grounds that, in their assessment, they still notionally own the house and therefore are able to pay for the care themselves.
Furthermore, if the person had to go into care within six months of the gift being made, then their children (as recipients of the gift) could automatically become liable for the care charges. Once the six month period has passed there is no time limit as to how far back the Local Authority can look when assessing whether or not the transfer of property has been made for the purpose of avoiding care costs. However, in general terms, the longer the period between the transfer and the care being required, the less likely it is that they will look closely at the transfer and the reason for it.
There may also be other tax and practical disadvantages arising from a gift of the family home to a person’s children. From a tax perspective the gift may not be effective to avoid inheritance tax if the person gifting it continues to live there after making the gift, and as this will fall foul of the ‘gifts with reservation’ anti-avoidance rules, the property will be regarded by the Local Authority as ‘notional capital’ and the gift will not therefore be effective to avoid residential home fees. Furthermore, if the children subsequently dispose of the property they have to pay Capital Gains Tax.
From a practical perspective there are a number of risks to parting with control and ownership of the family home, for example if your children are involved in divorce proceedings, are adjudged bankrupt, die before you without having made an appropriate Will protecting you, or even simply fall out with you. We can advise you regarding all of these factors in the light of your individual circumstances.
This Briefing has been produced for information purposes only and is based on the law and other information available at the time of writing. We cannot be held responsible for any losses incurred through acting or failing to act on the basis of anything contained in this Briefing.
If you require advice on any of the matters referred to, please contact us so that we can advise you, taking account of your own particular circumstances and requirements.