Giving your child a share of your house can backfire later
If you think you can reduce your care home bills by giving away a share of your property to your son or daughter, think again — you could face eviction if you do. The stark warning comes from the law firm Clarke Willmott, which has dealt with three cases in 12 months where care home residents have been threatened with being ordered out.
This is because they are joint owners of a property, which means they are classified as wealthy enough to pay for their care rather than have the fees covered by the local authority.
Anyone with assets worth more than £23,250, including all or part of a family home, must fork out what could be hundreds of pounds a week.
If the property is jointly owned with a spouse who still lives in it, there is no need for concern. It will not be included in the calculation of assets.
The problem arises when a stake in the house or flat has been transferred to someone else — a son or daughter, perhaps — in the mistaken belief that this will exclude it from the means test and cut inheritance tax liability too. If the co-owner refuses to allow the sale of the property, or for a deferred charge to be placed on it, there may be no money to cover the care bill. In one case a care home resident amassed a £25,000 debt before being threatened with eviction.
Anne Minihane, a partner at Clarke Willmott in Bristol, said: “They may have heard someone in their pub suggesting this is a good idea but they now find themselves in this difficult situation.
“If the co-owner is unwilling to co-operate, a vulnerable adult can be left in a very difficult situation because they are liable to pay for their care but they cannot access the funds to do so. Unless the elderly person has other assets, this kind of situation means they can’t pay the home fees and ultimately the care home might evict them.”
What are the rules?
If your assets are worth less than £23,250, you will get help from the local authority but you may have to make some contribution to your care fees because the means test is on a sliding scale.
In some situations, your home will not be taken into account when assessing the value of your estate. This applies, for example, if you need care for a temporary period of less than 12 weeks, although other assets, such as investments and savings, will be factored in to the calculation.
Similarly, your home will not be counted if it is still occupied by:
• your spouse or civil partner
• your estranged or divorced partner if they are a lone parent to a child under the age of 18
• a relative who is aged 60 or over
• a child of yours aged under 18
• a close relative who is disabled.
If your property is included in the assessment, it will be at the current market value, less any mortgage or other loan secured against it.
On average, private funders — those assessed as not entitled to state support — pay about 43% more in fees than those funded by the local authority, according to a report by MPs last month. Critics say this, in effect, means private funders are subsidising state-supported residents.
A local authority may step in to cover costs at its own rate to prevent a vulnerable adult from being made homeless, but there is no guarantee a care home will accept this arrangement indefinitely.
Minihane, who has been a solicitor for 26 years, said: “Care homes are commercial operations, so why should they accept the local authority rate for those who should be private funders. They can’t make a profit or cover their costs at the social rate.” As a result, they want to ensure that everyone liable for the higher rate pays it.
Clive Betts, head of the Commons communities and local government committee, which produced last month’s report, told Money: “What is very clear is that we need a complete reform of the social care funding arrangements.
“If you are in a care home, the likelihood is that most of your biggest asset, your house, will go to cover the fees. If you die of a heart attack, your family will inherit the home, and that seems fundamentally unfair.”
The Department of Health said: “Some people have always been asked to contribute what they can to fund their care, but help is available for those who cannot afford to and we are backing the sector with an extra £2bn dedicated funding over the next three years.
“Deferred payment agreements allow care home residents who own their homes to defer the costs of care. Residents may still be eligible if a family member remains in the home.”
Deprivation of assets
If you move into a care home and transfer part or all of your property — or any other asset — to someone else, the local authority may accuse you of trying to avoid paying for care under “deprivation of assets” rules. Deliberate deprivation is when an asset is transferred with the intention of putting someone in a better position to obtain care funding.
Jane Whitfield, senior private client solicitor with the law firm Barrett & Co in Reading, said: “It is a commonly held belief that transferring a percentage interest in your home to a family member can help you avoid the full property value being taken into account when you are assessed for care home fees.
“But if a local authority can show that the main reason for you completing the transfer was to avoid paying care fees, it can include the full value of the property when it carries out its assessment of your finances.”
A dead cert . . .or just deadly? The pros and cons of giving assets away
There are advantages to giving away money and possessions. An individual can pass on assets worth up to £325,000 without their beneficiaries having to pay any inheritance tax. Anything above this is taxed at 40%, although this can be lowered if you make substantial charitable donations.
An extra allowance called the residence nil-rate band, which came into force this month, gives you an extra £100,000 this year towards your inheritance tax allowance if you are passing on a family home. Only those with “direct descendants”, such as a child or grandchild, are eligible. The allowance will gradually rise to £175,000 in 2020-21.
- The asset threshold above which someone must start paying for their own care
You can transfer an asset to anybody and it will be deemed outside your estate for inheritance tax purposes after seven years. However, you cannot benefit from the asset after the transfer. For example, you cannot live in the family home and still claim it is no longer part of your estate; you have to pay a full market rent on it.
It is easy to change ownership of a property – it is just a matter of filing the relevant forms with the Land Registry. Most people would get a solicitor to deal with this.
Beware the risks
The risks in transferring any interest in your home to a family member are numerous. You may leave yourself exposed, with few resources to pay for your care if or when that time comes. Also, by relying on the local authority to provide your care, you will have less say in your choice of home (or your family will have less say if you have lost the mental capacity to make decisions).
Remember: you may get on well with the family member now, but there is no guarantee this will continue throughout the period of joint ownership. Just look at how many family disputes end up in court.
Jane Whitfield of the law firm Barrett & Co said: “The implications for families who fall out can be significant — and costly as well as time-consuming to resolve. As soon as you hand over part-ownership of your property, you are at the mercy of your family.
“If the family member remains in the property after you have moved into a care home, problems can arise if they become difficult and refuse to co-operate with the local authority.”
Have you had trouble after gifting a property to a family member?