Following our recent articles on using gifts as part of your overall inheritance tax strategy, an interesting case highlights the rule around about gifting once you go into care.
When individuals give away assets when there is an expectation of them going into care or while they are in care, the gifts may be considered as a deliberate deprivation of assets. In such a case the local authority will treat the assets given away as notional capital for the purpose of assessment. However, the deprivation of capital must be deliberate in that it is carried out with the intention of putting assets beyond the reach of the local authority.
In the case in question, the Local Government and Social Care Ombudsman has criticised a local authority that refused to pay for an elderly woman’s residential care fees, after it learned that she had made regular cash gifts to her family after being admitted to the care home.
The woman, referred to as Mrs Y, suffered a stroke in 2007 and, aged 80, had to go into residential care. At the time, she had assets of about £250k, including her home. As a result she was not eligible for local authority financial assistance under the Charging for Residential Accommodation Guide (CRAG) rules. Mrs Y’s daughter sold her mother’s house and used the proceeds to pay her care home fees.
By January 2015, the money had nearly all been used up, and Mrs Y’s assets had fallen to the £23,250 threshold for local authority assistance in England. At this time, her daughter applied to North Yorkshire County Council for financial help, and pending completion of a full financial assessment, was granted it.
From January 2015, North Yorkshire County Council began paying the care home fees including a special extra rate charged by the home on top of the standard local authority rate. However, when the Council came to do the financial assessment, it has been revealed by Mrs Y’s daughter that she, and other family members, had been receiving annual cash gifts from her mother since she had been admitted into the care home until 2014, at which point her money had run out. The daughter said that the gifts had been recommended by an independent financial advisor. They amounted to nearly £75,000 in total.
The Council took the view that this was deliberate deprivation of capital under the CRAG rules, which state that gifts to family can be treated as deprivation of capital if they are made with the intention of reducing the amount the person is charged for their care. As a result the Council immediately stopped paying Mrs Y’s care home fees and demanded repayment of the nearly £7,000 it had already paid. While Mrs Y’s family paid the money back they complained to the Ombudsman about the Council’s behaviour.
The Ombudsman decided that North Yorkshire County Council took its actions without ever completing a full financial assessment and simply assumed that the gifts amounted to deliberate deprivation of capital. In addition, the Council’s calculations on the amount of deprived capital were not supported up by any evidence. The Council had not properly taken into account that Mrs Y had already established a pattern of gifting before she went into care and there was no evidence of any haste to dispose of her assets. Even though the amount of the gifts increased after she went into care, the Council did not provide any other evidence to show why it had decided the gifts were made with the intention of avoiding care costs. Mrs Y had paid the full amount of her care for nine years, and more than 70 per cent of her money has been spent on care home fees.
The Ombudsman ordered the Council to apologise, reassess Mrs Y’s situation properly, and repay her any fees to which she is entitled.
Mrs Y is still in the same care home, and pays all her monthly income towards the fees, but cannot cover the full cost. The care home has said that it will take ‘further action’ if the debt is not paid.
The outcome of this case is interesting to say the least and goes to show that each case will be assessed based on the specific facts. In this particular case, the fact that Mrs Y had established a pattern of gifting and such gifts – while increased when she went into care – had started prior to her going into care went in her favour.
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