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The "7-year rule" is often mentioned in discussions about how to pay care home fees and gifting assets. However, there is a widespread misconception regarding how this rule applies. It is strictly an inheritance tax rule. When it comes to care home fee assessments, there is no set time limit for local authorities to look back at gifts or transfers of assets.
If you are planning for future needs or considering going into care, understanding the distinction between tax laws and care funding rules is vital to avoid unexpected costs and ensure you're not caught out when it comes to paying for care home fees.
Is There a 7 Year Rule for Care?
The actual 7-year rule relates specifically to inheritance tax planning. Under inheritance tax rules, gifts made more than seven years before death become exempt from inheritance tax.
However, the concept of a 7-year rule for care home funding is a myth. Local authorities in the UK have the power to look back indefinitely when assessing whether you have deliberately given away assets. Unlike inheritance tax, care fee assessments have no time limit. Whether a transfer happened two years ago or twelve years ago, if the local authority believes the assets were given away to avoid care, they can investigate.
It is important to distinguish this from the year rule for care home funding, which doesn't effectively exist in the way many hope. The local authority is concerned with intent, not just the timeline. When it comes to assets to avoid care home costs, councils have broad investigative powers that extend far beyond any fixed period.
Understanding the Deprivation of Assets Decision
The core concept you must understand is deprivation of assets. This occurs when an individual has deliberately reduced their assets (such as savings, property, or income) to qualify for state-funded care.
A deprivation of assets decision is made by the local authority. If they decide that you have deprived yourself of assets to avoid paying for care, they may treat you as if you still owned them. This is known as "notional capital." This means you could be responsible for paying care home fees based on the value of these assets, even though you no longer possess them.
What Constitutes Deliberate Deprivation?
Local authorities will look for evidence that avoiding care fees was a "significant operative purpose" behind any gift or transfer. When conducting an assessment for care home fees, they consider:
The Motivation: Did you make the transfer with the intention to avoid paying for care home fees? This is the crucial question in determining intentional deprivation of assets.
The Timing: At the time of the transfer, was there a reasonable expectation that you would need care and support in the near future? If you had existing care needs or declining health, transfers are more likely to be considered deliberate deprivation of assets.
If the council believes that people have deliberately deprived themselves of assets, they have the legal right to calculate fees based on the value of the assets given away. This can result in being responsible for paying care costs you cannot afford, as the money or property is no longer available to you.
When You Must Pay For Your Care
When someone needs to move into a care home or requires residential or nursing care, the local authority conducts a means test. This financial assessment for care home funding determines how much capital you have and whether you must pay for your care in full.
Savings and Assets Thresholds
Upper Limit: If your income and assets are above the upper capital limit (currently £23,250 in England), you are known as a "self-funder" and must fully fund your care. At this level, you will pay your care fees entirely from your own resources.
Lower Limit: If your assets fall below the lower limit, the local authority may help pay care fees, though you will still contribute towards your care home costs from your income.
During this assessment, they will scrutinise assets to avoid paying care. If they believe you have given away assets to avoid care home fees, the decision will likely go against you. The financial impact can be severe, as you may need to pay care fees in full despite no longer having access to the transferred assets. You can read more about how these assessments work in the Age UK guide to paying for care.
Can I Sell My Home to Avoid Care Costs?
A common question is whether you can sell your home or transfer the deed to children to avoid care home fees and the associated costs of residential care.
Property Disregards: In some cases, the value of your home is disregarded (for example, if a spouse or dependent relative still lives there). However, if you transfer the property solely to avoid paying for care, this is considered deliberate deprivation.
If you give away your home and then enter a residential or nursing home, the local authority may calculate your fees as if you still owned the property. This assessment will be based on the current market value, and you will be expected to contribute towards your care home fees accordingly. This can leave families in a difficult position where they are responsible for paying large bills without the asset to fund them.
For those entering permanent residential care, the family home often represents the largest asset in the means test. Understanding how property is assessed is crucial to avoid inadvertently being liable for care fees in full.
Legitimate Reasons to Reduce Assets
Not every transfer is an attempt to avoid paying care. There are legitimate reasons why you might reduce your capital that will not be considered deliberate deprivation.
Exempt from Care Home Fees
You may not be penalised if the transfer was for:
Family Traditions: Regular birthday or religious gifts.
Life Events: Paying for a wedding or a grandchild's education.
Debt Repayment: Using savings to pay off legitimate debts.
However, if you give away a significant lump sum whilst in poor health, or give away assets to avoid care just before a health assessment, the authority may decide you acted improperly to ensure the state pays for your care home costs. The key distinction is whether the primary purpose was to avoid care home fees or whether it was a genuine transaction unrelated to funding for care.
Challenging Decisions: The Ombudsman
If you disagree with a council's decision regarding your assessment or social care funding, you have the right to complain. If the issue is not resolved through the council's internal procedure, you can escalate it.
The Local Government and Social Care Ombudsman acts as an independent reviewer. They can investigate if the local authority failed to follow the Care Act guidance properly when deciding if you deliberately deprived yourself of assets.
It is the role of the government and social care ombudsman to ensure fair treatment. If you feel the council did not properly assess the value of your assets or ignored evidence regarding your motivation, the social care ombudsman can recommend the council reconsider their decision. You can access their complaints service via the Local Government and Social Care Ombudsman website.
Planning Your Care Funding Without Risk
Rather than attempting to reduce your assets to avoid fees, it is safer to engage in proper financial planning. Understanding the rule for care home fees and working within the system legitimately will protect you and your family from unexpected liabilities.
Continuing Health Care
Before looking at social care, check if you qualify for NHS Continuing Healthcare. This is a package of care arranged and funded solely by the NHS for individuals with significant health needs. If you are eligible, you do not need to pay for care, regardless of your savings or assets.
Deferred Payment Agreements
If your capital is tied up in property, a Deferred Payment Agreement allows you to use the value of your home to pay for your own care eventually, without selling it immediately during your lifetime. This prevents you from being responsible for paying care fees upfront whilst protecting your property for inheritance purposes.
Commonly Asked Questions About Care Funding
Given the complexities of care funding, many families have specific questions about their liability and rights.
Is there a time limit to deprivation of assets?
No, there is no statutory time limit to deprivation of assets investigations. Whilst the 7 year rule applies to inheritance tax, local authorities can look back as far as they deem necessary when assessing whether someone has deliberately deprived themselves to avoid care home fees.
What happens if my home is included in the assessment?
If your home is included in the financial assessment, the value of your assets will rise significantly, likely making you a self-funder. If you have transferred it to avoid paying for care, it may still be counted as "notional capital."
How can I prepare for home fees in the future?
To prepare for home fees in the future, consider setting up a Deferred Payment Agreement or investigating an Immediate Needs Annuity. These are legitimate ways to manage funding for care without attempting to hide assets.
Will I be assessed on assets I no longer own?
Yes, if the local authority deems the transfer was a deprivation of assets, you will be assessed on assets you no longer hold. This determines your contribution towards care and may leave you liable for the full cost.
Support at Ashberry Care Homes
At Ashberry Care Homes, we understand that the rules surrounding assets to avoid paying and the 7 year rule can be confusing. Whether you need care immediately or are planning ahead, the financial landscape is complex.
We recommend seeking independent financial advice to ensure you do not inadvertently fall foul of the rule for care home fees. Our team is here to help you understand:
- The cost of care in your area
- How to prepare for scenarios where you pay care home fees
- Legitimate ways to structure your estate
Contact our friendly team today. We can discuss your specific situation, whether you are looking to qualify for social care legitimately or plan private funding, ensuring you access the high-quality support you deserve.
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