Having exhausted the scope for claims for mis-sold Payment Protection Insurance, the telemarketing industry seems to have identified worries about care home fees as the next target, with organisations of varying degrees of integrity offering (for a sizeable fee, of course) a ‘guaranteed’ way to avoid them. Usually this involves transferring assets (typically the family home) into some kind of trust. The general idea is that you thereby reduce your assets below the threshold at which the local authority will meet the care home costs.
Does it work?
Well, at one level it may do. In undertaking the ‘means test’ which determines the local authority’s contribution to care home fees, there are rules on ‘deprivation of assets’ – these allow a local authority to treat you as continuing to own assets which you have given away with the intention of avoiding paying for care. But the longer the period of time between the gifting of assets and the need for care, the harder it is for the rules to be invoked. By the same token, giving assets away when the need for care is imminent is likely to be a non-starter.
Yet the better question is not ‘does it work?’, but ‘is it worth it?’
Quite apart from the fees involved and the lack of flexibility once you have alienated yourself from ownership of your home or other assets, the planning:
- may create a charge to Inheritance Tax on putting property into trust;
- may in some circumstances increase rather than diminish Inheritance Tax payable on death;
- is very likely to increase the Capital Gains Tax payable on a future disposal of the property; and
- may require you to pay a market rent for continued occupation of your home – creating, as well as a cost to you, a charge to Income Tax on the recipients of the rent.
Further, it’s worth putting the planning into context. Only about 15% of people aged 85 or over are resident in care homes, and in recent years that percentage has been falling, not rising. Moreover, lengthy stays are not typical: statistics suggest that the median stay is a couple of years or so. Thus, it’s likely that most people will not pay care home fees and even those who do will in many cases not pay out enormous amounts.
That’s not to say that planning for care home fees should be dismissed. But it’s something that should be considered not as a result of a call from a scaremongering commission-hungry salesman, but in the context of a balanced and considered review of your financial position.
For more information, please get in touch with your usual BKL contact or use our enquiry form.