As part of Inheritance Tax planning, you will often be advised to give away some of your assets prior to death to support your beneficiaries and reduce the overall size of your taxable estate.

This is a fairly common practice, but many people aren’t aware that by doing so their local authority may decide to deny social care, such as support for nursing home fees.

What is deliberate deprivation of assets?

If you have intentionally reduced the assets you hold in your estate, even to support your family or manage your IHT liabilities, local councils can decide that you are not entitled to social care support.

They have the power to reduce or take away social care funding where they believe you have reduced the amount you contribute towards the cost of care services provided by them.

With social care becoming an increasing financial burden for many local authorities, many councils are taking a deeper dive into the finances of individuals in need of care.

This power has no time limit, and your local council could look back over many years when making a decision.

If a council believes you have been deliberate in your actions they will deny social care and expect you to fund social care yourself.

Planning ahead

As a firm, we regularly advise clients to gift assets away but we appreciate the need to ensure the person who is making the gift is not in receipt of social security benefits such as incapacity benefit, attendance allowance or disability allowance which may lead to a nursing care home in future.

To reduce the chance of conflict, if the following is in place then there is less likelihood of local authorities getting their hands on gifted assets:

• The person was in good health when making the gift.
• If the client has a limited life expectancy at the time of the gift and has sufficient funds to pay for care for that period – but lives longer, provided you can produce robust evidence, it is reasonable to make a gift.

Intentions

The local authorities have a tendency to use the above criteria to determine the contributions towards the cost of social services.

However, the intention of the gift giver is often the deciding factor when action on social care is taken. Local authorities should determine the intention of the gift before using the criteria outlined above.

There have been several test cases for this including the example of a father who won a court battle after it was discovered that the council had failed to ascertain his intentions during due diligence.

In this case, the father helped all of his children get on the property ladder. During the gifting to the last child, he was not well and the local authority was trying to use Deliberate Deprivation for Social Care to deny care.

In isolation, this might seem like this individual was attempting deliberate deprivation of assets to gain support for care costs, but the courts said that his local authority failed to confirm both pattern of giving and the intention of the gift when trying to use Deliberate Deprivation for Social Care.

These rules are complex and so it is important to seek out professional advice when deciding to provide gifts to your loved ones as part of your tax planning. To find out how we can help you, please contact us.