What are the rules for gifting assets?

It can be tempting to consider gifting assets to avoid paying for care, but beware of the pitfalls.

If your relative has savings and assets worth more than £23,250 in England and Northern Ireland, or £26,250 in Scotland, or £24,000 in Wales, or they have a weekly income high enough to pay for care fees, they are not eligible for local authority funding will have to pay for their own care.

Most people’s home is their most valuable asset and unsurprisingly, some consider ‘gifting’ their property or other assets when having to consider a care assessment. However, local authorities will look into this when doing their assessment.

What is considered to be deliberate deprivation of assets?

During a local authority financial assessment for residential care, your relative will be asked about previously-owned assets, as well as current assets and it is easy to check the ownership of previous property. If the local authority believes that someone has deliberately disposed of assets to increase eligibility for local authority funding, they will take this into account. This includes other assets as well as property and is known as , this is called ‘deliberate deprivation’. This would include transferring property ownership for a nominal sum.

However, giving away tax-free sums of money to children or grandchildren, so that they can avoid inheritance tax is allowed, as long as the person gifting the money lives for seven years after making the gift, otherwise this is taxable.

When is disposal of assets seen as ‘deliberate’?

The local authority will consider whether the main reason to avoid care charges, the timing of asset disposal and the amount gifted and whether this would make a material difference to avoiding paying for care

What are the consequences of deliberate disposal of assets?

If your relative is found to have ‘deliberately deprived’ themselves of assets, the value of these assets might still be taken into account in the financial assessment, even though they no longer own them. This is known as ‘notional capital’. If someone is found to have lied about asset disposal when the local authority has already paid for care, they may claim the costs back. Legally, local authorities have can recover costs within six months ofbeing approached for funding. If the transfer was made more than six months before this time, the local authority cannot do so.  You can appeal the local authority’s decision if you feel it is unfair.

See a solicitor before gifting

If your relative is thinking about gifting their assets, particularly property, they must seek legal advice.

Inheritance tax

If your relative gifts their home to their children, but dies within seven years, the value of the property can still be included in their total estate. If their total estate is valued at than the inheritance tax threshold (£325,000 in 2016-2017) and no transferrable nil rate band is available from the estate of a predeceased spouse or registered civil partner, the Government will take 40% of the value of the estate in excess of the available threshold in inheritance tax, reducing the amount that goes to beneficiaries. If your relative lives beyond seven years, it is not included. If your relative gives half of the home to their children, who move in and share bills, the half given away is not treated as part of the estate for inheritance tax purposes, as long as your relative lives for seven years after gifting.

Wills

Make sure your relative has made a binding will to avoid any problems of intestacy upon their death.