7-Year Rule and Care Home Fees – Deliberate Deprivation of Assets Explained
For many homeowners, the idea of passing on the family home to children or loved ones is a powerful one, both emotionally and financially. One persistent myth that continues to circulate is the one around the 7-year rule and care home fees.
“If I gift my property and survive for 7 years, it won’t count toward care home fees, will it?”
It sounds simple and appealing. But is it true?
Unfortunately, no. This is a common misunderstanding that confuses the rules around inheritance tax (IHT) with the rules which relates to means-tested help for care home fees. The 7-year rule and care home fees conflates the IHT rules on deliberate deprivation of assets.
Our expert solicitors Monika Volsing (Head of Private Client) and James Urquhart-Burton (Head of Continuing Healthcare Claims) have come together to help dispel the myth.
Call us today to make a solid plan for the future
Where Does the 7-Year Rule and Care Home Fees Come From?
The “7-year rule” is real. But it relates only to inheritance tax, not care home fees. Under current UK IHT laws, if you gift an asset (like your home) and survive for 7 years, that gift may not be counted as part of your estate when calculating inheritance tax upon your death. These are called Potentially Exempt Transfers, or ‘PETS’.
However, this rule does not apply when local authorities are assessing whether you can afford to pay for your own care. Which means that, whatever your plans are, you should remember that there is no correlation between the 7-year rule and care home fees.
How Care Home Fee Assessments Work
When someone moves into a residential or nursing home, local councils should carry out a means test to determine if the person should contribute to the cost of their care, and how much. This includes looking at income, savings, and assets. Notably, the value of your home, depending how it is owned.
If you no longer own your home, it’s not automatically exempt from consideration. Councils will look closely at when and why the asset was transferred, and whilst timing is a relevant factor, it’s not the only one. If the local authority believes that you transferred your home to another person to avoid paying care home fees in the future, then they regard it as a “deliberate deprivation of assets or capital”. Unfortunately, the effect of this is that the resident will be charged for their care in the same way they would have been had they still owned the property.
So, What Is a Deliberate Deprivation of Assets / Capital?
If you give away your home (or other assets) and it's found that the motive was to avoid paying for care, the local authority can treat you as if you still own it. This applies regardless of how many years have passed since the gift was made.
There is no time limit like the 7-year inheritance tax rule, so there is no correlation between the 7-year rule and care home fees. Even if you transferred the property decades ago, if it looks like the gift was made with future care costs in mind, the council could still assess you as having that asset. This is illustrated by the two key legal cases which have been decided in this area.
In the case of Yule v South Lanarkshire Council (2001) 4 CCLR 383, the court decided the local authority could take account of the value of the gifted property for care home fees because the transfer (which had occurred over 18 months before the parent went into a care home) was for the purpose of avoiding care home fees.
In contrast, in the case of R (Beeson) v Dorset CC [2001] EWHC 986 (Admin), (2002) 5CCLR 5, the Court of Appeal agreed that there was no deliberate deprivation of assets or capital where a man gifted his property to his son because he thought his son may have use of it following the breakdown of the son’s marriage. There was no evidence that the intention behind the gift was to avoid care home fees.
When Is a Gift Not Considered Deliberate Deprivation of Assets?
Not all gifts are treated with suspicion. If there is a clear, documented reason for transferring the property that has nothing to do with care, such as financial hardship, a genuine move abroad, or resolving legal ownership issues, then it might not be considered deliberate deprivation of assets.
So, What Are the Options When it Comes to Care Home Fees?
As they say, it’s a free world. If you wish to gift your property to another to avoid care home fees, then you can. However, there could be consequences. Not least the risk of giving up your legal right to reside in the property, but also down the line if you need care and support in the future.
If you're concerned about the future cost of care and want to protect your assets for your family, there are a few practical (and legal) alternatives to consider.
Seek financial advice if you’re unsure about the 7-year rule and care home fees
There are legitimate ways to plan ahead, including trusts, insurance, or reorganising assets in ways that comply with the law.
Talk to a solicitor to ensure you avoid deliberate deprivation of assets
A legal professional can help ensure any plans you make are solid, especially around gifting property or setting up trusts. We can help you to ensure that your property is owned (and your will drafted) in the best possible way to minimise the impact on care home fees.
If you’d like to speak to Monika’s team about the options, complete our enquiry form
Focus on early planning
The earlier you start planning, the more options you may have. But the motivation must be genuine and not just to avoid care costs.
Be educated on care funding
Understand (and make your children aware) that in the event you develop complex needs in the future, the NHS should take responsibility for fully funding the care costs. This is called NHS Continuing Healthcare Funding (CHC), and it should be paid based on your health needs, not your financial means.
Click here to read more about CHC
Misunderstanding the 7-Year Rule and Care Home Fees Can Lead to Deliberate Deprivation of Assets
The idea that you can simply gift your home and avoid care fees after 7 years is a dangerous myth. While it might work for inheritance tax, it won’t shield you from having to pay for care home fees under the current means-tested system. If you’re unlucky, it might even land your family in a costly legal mess.
If you're thinking about your future care or passing on your estate, professional advice is essential.
