Protecting your home from care home fees?
I’ve recently been asked a few times about what can be done to stop the property having to be sold to pay for care home fees. The irritating answer is – it depends and possibly not much!
It is entirely understandable that people who have worked hard to save their money and own their house want to be able to pass it on to their loved ones. However Local Authority care is means tested and in Plymouth the cost of social care is about three quarters of the entire Local Authority budget and resources are limited. The Local Authority cannot avoid its statutory obligation, to care for individuals within their area who are in need of their support, so this means that the Local Authority will look closely at the cases where they consider that people have intentionally deprived themselves of assets in order to avoid paying for care.
Whilst I fully understand the issue about wanting to pass on wealth, I do not understand why someone would prefer to lose choice and potentially quality as well for the care that they might need, just so their relative can benefit!
So, let’s go through some of the rules:
If the property is occupied by a spouse, partner, relative over 60 or disabled relative, then the property is exempt anyway. If the property is jointly owned and the co-owner refuses to sell, then the only thing that could be sold is a half share and this has little value on the open market, which effectively exempts the share of the property.
The requirement for care must be “reasonably foreseeable”, due to existing poor health and people often think about doing something with their property once they are in poor health. However if someone gifts their property when they are in good health, then this might exempt it, if they need care in the future, but since they may never need care, gifting the house and the costs involved might be unnecessary, particularly since only around 20% of people end up in care.
If a sole owner of a property gives it away, which these days, is often done by putting it into a trust, then that person has to continue without the need of residential care for a period of 5 years, or under the Care Act, the Local Authority can pursue that asset and undo the transaction, which defeats the object of doing it in the first place.
If the gift is made an absolute gift to a family member, which would be very unwise, then the person can find themselves homeless, if the family member gets divorced, gets into debt or dies. If they get divorced, their entire asset portfolio would be taken into account, which would include the gifted property and this might need to be sold to deal with the issues relating to the divorce. If they get into debt, their assets are realised to pay their debt and finally, if they die and leave the property to someone else, that person can serve notice and the donor of the gift finds themselves homeless.
So what if they give the property away and put it into a trust? Trusts are taxable in their own right and are subject to Capital Gains Tax (CGT), Income Tax (IT) and Inheritance Tax (IHT). Depending on the drafting and set up of both the trust and the assets, on the sale of the property to purchase a different one, the donor can find themselves having to pay CGT on the sale of their home, when if they owned it, they would not have had to pay. There are also 10 yearly charges to IHT for trust assets over £325,000 at 20%, however the detail of calculating the tax is complicated! Trusts require Trustees to care for the assets and depending on the kind of trust, may require minuted annual meetings and registration of the Trust with HM Revenue & Customs.
So I revert to my original answer of what can you avoid paying fees – it depends and possibly not much! But I would also that it’s complicated and you might end up with something that you don’t intend, such as an unwanted tax bill!