Generous gifting or deliberate deprivation?

The Local Government and Social Care Ombudsman (LGSCO) has issued guidance to English councils on making decisions on whether someone has deliberately deprived themselves of assets to avoid paying residential care home fees.

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.

The test applied by local authority for anti-deprivation provisions is whether a benefits claimant deprived themselves of capital for the significant operative purpose of securing entitlement to the benefit, in which case the notional capital would continue to be taken into account for means-testing. Placing assets into trust can also be deemed to be capital deprivation if done in order to secure the benefits in question, as demonstrated in the England and Wales Court of Protection case of Re LMS (2020 EWCOP 52). In addition, moving money from a chargeable asset into a non-chargeable asset can also be deemed to be capital deprivation.

The ombudsman’s new guidance is aimed at financial assessment practitioners in local authorities to make decisions fairly and to justify them. It uses examples to demonstrate the points commonly raised in complaints received by the ombudsman.

It says, before deciding whether someone has made gifts with the intention of depriving themselves of capital to avoid care costs, councils need to consider issues such as:

  • how much money someone had when they made the gifts;
  • the size of gifts relative to their overall capital;
  • the purpose of the gifts (for example, were they for a birthday, an anniversary, another significant event or random gestures?);
  • historic patterns of gifting (has gifting increased or is it a continuation of what someone has always done?); and
  • the person’s life expectancy when the gifts were made.

For more information about gifting allowances, have a look at our Inheritance Tax: Gifting Top 6 infographic.

The guidance warns councils that they should not simply assume that the person has deprived themselves of an asset with the intent of reducing what they should pay towards their care and support. They should first fully explore whether there are other valid reasons why someone no longer owns an asset and should ask the service user or their representative for their version of events before making decisions on deprivation of capital. The council should also bear in mind that a decision of intentional deprivation of capital requires the service user to have had a reasonable expectation they may need to pay towards that care and support at the time of the deprivation. The timing of the disposal of an asset can, therefore, help inform a decision about the person’s motivation for disposing of it, says the guidance.

However, local authorities are under a duty to act where they suspect deliberate deprivation has taken place.

Listen back to our recent webinar: ‘Inheritance tax: Addressing the £293bn Taboo’, where we discussed many of the tax-efficient ways you can pass down your wealth, including a look at long term care and how to balance your needs for tomorrow, today.

The information in this article is correct as of 27/09/2022.