Saving Your Home from Care Costs

Since the introduction of charges for care for the elderly there has been a lot of irresponsible comment in the media and by vendors of financial schemes and products regarding the avoidance of such charges.

The harsh reality is that the government drafted the National Health Service and Community Care Act 1990 in the knowledge that attempts to circumvent it would be made - and guarded against them.

First and foremost, the local authority is empowered to disregard, without limit of time, any transaction that they consider as "self deprivation".

Secondly, any charge that transfers the ownership of your home, robs you of your security and can result in disaster. Giving your home to a child is often quoted as being an ideal solution, BUT -

• Gifting the property, but continuing to live in it, is not a "true gift" in law unless you pay a full market rent.
• From the date of the gift, it will not be the primary residence of the owner, and will therefore qualify for Capital Gains Tax on any increase in value.
• If your child becomes involved in divorce or bankruptcy, your house will be one of their assets to be claimed in the legal proceedings.
• If your child dies before you, your house will be part of their estate and go to their beneficiaries.
• If your relationship with your child breaks down, your ability to remain in your house would be prejudiced.
• Income Tax on the rental value of your house will be payable every year.

Clearly these factors make gifting a very risky and expensive affair, particularly as only one in six of us actually go into care.

However there are steps that you can take, which are perfectly legal, and severly limit the amount that can be levied upon by the local authority.

We adjust the ownership of the house to a Tenancy-in-Common so that husband and wife own one-half each. Then each Will gives the deceased's half of the house to a trust which permits lifetime occupation by the survivor.

This limits the assessable value to half of the house, less the minimum threshold. As an example, in the case of a house worth £100,000, the effect (in round figures) would be:

In the example this perfectly legal and acceptable procedure saves the eventual beneficiaries £50,000 and carries none of the risks associated with other schemes.

Our advisors will be happy to give a fuller explanation of these issues.