Care home fees and protecting your parent’s home
Leaving a financial legacy to children, or to a charity is a common wish for many of us. However, the potential burden of care home fees can mean financial legacies are severely reduced, or even eliminated.
Whilst the law states that individuals must pay for their own residential care (unless their needs are health-related), the situation depends on whether you qualify for local authority (LA) funding
LAs assess virtually all income and assets to determine what you pay. Anyone with assets of more than £23,250 must pay all the costs of their care, but nothing is payable if the value of your assets is less than £14,250
This means that most home owners will not qualify for LA funding to meet the cost of their residential care
Is giving away your home the solution?
Many individuals think that the solution is to give away their homes, whilst continuing to live in them.
However, if a LA is able to prove that you gave the property away to avoid paying nursing home fees (known as the “deprivation of assets” rule), you will be treated as still owning the property for this purpose, unless you can establish at the time of the gift that
- you were in good health and did not foresee that you would require nursing care in the future
- there were valid reasons for gifting the property away
Once you have manoeuvred around these potential issues, the next question is whether you should make an outright gift of the property to someone else (i.e. a child), or put some other arrangement in place.
The problems with making a direct gift to a child, for example, is that you could lose your home if the child has matrimonial or financial difficulties in the future.
A more sensible approach would be for you to put your home into trust. Under the terms of the trust, you would be entitled to occupy the property for the rest of your life. With any trust arrangement, it is very important that you choose your trustees carefully, since they will own your home
Tax implications of trusts
Of course, once you start transferring assets from one place to another, the taxman tends to become interested.
You should always take specialist advice before entering into any transaction which results in you transferring your home to someone else.
The following is a brief overview of the tax issues applicable to putting your home into trust:
- The transfer is a disposal for Capital Gains Tax purposes. This means that unless you have occupied the property as your main residence, you will be taxed on the difference between the current value of the property and the price you paid for it
- For inheritance tax (IHT) purposes, the transfer into trust is a chargeable transfer, which means that an immediate tax charge would arise if the value of your home exceeds what is known as the nil rate band. The nil rate band is currently set at £325,000 for individuals, or £650,000 for married couples or those in a civil partnership
- The tax is charged at a flat rate of 20% on the value of the property above the nil rate band. If you die within seven years of putting the property into trust, a further tax charge can arise.
Also, because you have given your home away but continue to occupy it, the taxman regards the value of it as still forming part of your estate for IHT purposes. If this anti-avoidance rule applies to your circumstances, then you should take advice before doing anything else as problems can arise
The need for professional advice
As we are all living longer, the downside is that an increasing number of us will require residential care at some point in our lives. For those who require residential care, the cost of providing it could mean that the value of their estate is severely diminished. Putting sensible planning in place now could ensure that your future care needs are met and that your intended legacies remain intact
A word of warning! Due to the complexities that surround such planning, it is imperative that specialist advice is taken before you doing anything else.
myageingparent has teamed up with Grace Consulting to offer you expert care advice
Grace Consulting provides affordable fee-based independent advice to help you choose the best care option to suit you and your relative’s needs and wishes. Our Care Advisers provide the knowledge and support you need to make the right decision for you and your family. myageingparent.com is partnering with Grace Consulting, the UK’s leading provider of personalised independent care advice, who, for over 40 years, has specialised in finding the best possible care for older people. Please note this is not an Age Concern or Age UK service.
Call now on 01483 209626 to get the help and advice you need at our preferential discounted rates
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Malcolm Emery is a partner at WBW Solicitors and specialises in Trusts and Tax Planning. www.wbw.co.uk, [email protected], 01626 202404
