Will I Have To Sell My House To Pay Care Home Fees?

If you’re concerned that your property will have to be sold to pay for care home fees in the future, you might want to consider an Asset Protection Trust. Gifting the property to your children during your lifetime does not offer adequate protection, as the local authority could accuse you of the deliberate deprivation of assets.

Will I have to pay care home fees?

If you go into a residential care home, the local authority will carry out a means test to see if you should pay for your own care home fees.

Currently, if your assets exceed £23,250, you'll receive no help with your care costs. Only if the assets are below £14,250 will the care costs be fully met by the local authority. There is a sliding scale of contribution from the local authority for care costs for those who have assets valued between those two figures.

With care costs possibly running at £1,000 per week per person, and even higher for those who require dementia care, you can understand the concern of children that their inheritance will disappear.

Will your parents need residential care?

When discussing what steps can be taken to reduce the impact of these costs on a person’s wealth, and thus the children’s inheritance, we regularly hear children say that they will never allow their parent to move into a residential care home.

With the benefit of experience, we can say that you can never fully discount the prospect that someone will need full-time residential care. The level of personal care that a parent can require, and the risk that they can pose to the mental and physical wellbeing of their family, cannot be fully understood by those whose parents are still independent. Becoming a full-time carer for a parent can have a serious impact on your own family life and your employment prospects.

When will your property be included in a means-test?

So it’s true that you may have to sell a property to pay for care costs, unless those costs can be financed from income or savings. However, if there are qualifying dependents who live in the home who have the right to stay there indefinitely, the house will not be sold so long as they continue to reside there. These qualifying dependents could be your:

• Spouse or civil partner
• Unmarried partner
• A close relative over the age of 60
• A relative who is incapacitated
• A child

If this applies, the capital value of the house will not be included in the means test assessment as to your threshold for care fee support.

Should I gift a property now to avoid care home fees?

If you don’t have qualifying dependents, then a property is at risk, should you need to pay for care home fees. Some people wonder whether they should gift the property to their children now, just in case the need for residential care arises in the future.

However, if you gift a property when it becomes apparent that care is looming, be it outright to a child or into a Trust, it will not avoid the house being brought into account.  Such an act will be considered to be a deliberate deprivation of your assets and the calculation will assume that you still own the home.

Similarly, you cannot make a sudden gift of money to your children to reduce your savings.  There is no time limit as to how far back a local authority can look to see whether you have tried to reduce the value of your estate. If you do not have an estate that would be taxed for Inheritance Tax purposes on your death, then you have to be able to give another valid reason why you have made the gift. The local authority will ask where the house has gone and why. Although your children’s assets are counted as completely separate from your own, anything they have been gifted for the purpose of deliberately depriving you of your assets will be brought back into the calculation. The local authority can also take steps to recover these monies.

What about the seven year rule?

Clients regularly quote to us the seven year rule. Unfortunately, that only applies to calculating the liability of an estate upon death to Inheritance Tax. There is no seven year rule with regard to gifting away your assets to avoid paying for your care.

There are other major disadvantages of giving your home away in your lifetime. One example is the Capital Gains Tax liability for the recipients upon the sale of the property (whereby they immediately lose the free uplift for Capital Gains Tax purposes on death). There is also the loss of the Residence Nil Rate Band for Inheritance Tax purposes which, on a joint estate of husband and wife or civil partner, can give a saving of £140,000 in tax on current rules.

Consider an Asset Protection Trust

It’s not all bad news. If you want to protect your assets from being eaten up by care home fees, you might consider an Asset Protection Trust. This can be included in the Wills of those who are married, in a civil partnership or cohabiting. In the right circumstances, an Asset Protection Trust protects a large proportion of the value of the house from care home fees, when the surviving spouse or partner needs residential care.

At Aticus Law we can advise you on the pros and cons of making a Will, which is completely legal and which the local authority cannot attack.

We are aware that there are social care reforms on the horizon. Even so, there will always be ongoing care costs that are not paid for by the local authority, such as food, clothing and personal services. These can be significant. There is every reason, therefore, that you should consider a care home fee planning Will.