What are the care cost regulations for deprivation of assets, and how should they be followed?

The average annual cost of care is at least £pound;66,000, leaving little money for an inheritance

However, HMRC has the right to demand reimbursement if you donate your money and still require paid care. We describe the "deprivation of assets" regulations concerning the cost of care.

One way to prevent your loved ones from having to pay inheritance tax is to leave your money to them while you are still living (in many cases). However, HMRC may contact you if you later require that money to cover the cost of your care.

According to the 2025 House of Commons Committee Report on Adult Social Care Reform, four out of five adults over 65 are expected to need some sort of care before they pass away. This means that millions of families may have to bear the expense of care.

However, many people will also be eager to leave an inheritance, and if certain requirements are fulfilled (such as the seven-year inheritance tax rule), giving the money to your loved ones while you are still alive is one of the best ways to help them avoid an inheritance tax bill.

The rest of the article is below.

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Start your trial: Giving money to loved ones and possibly paying for care may conflict, making it challenging to schedule any inheritances.

You'll have less money to enjoy yourself if you give it away too soon. However, if you give the money away too late and discover that you require care, you may violate the deprivation of assets regulations, which could put you or your loved ones in conflict with HMRC and possibly require you to reimburse the local government for the money.

In separate articles, we examine care fees annuities as a means of financing care and whether you should seek advice regarding caring for a relative.

What are the rules for deprivation of assets?

When someone intentionally lowers their capital by giving, transferring, spending, or restructuring it in order to lower the amount they would have to contribute toward their care expenses, this is known as deprivation of assets.

"If a local authority determines that deprivation has occurred, it can treat the person as if they still own the asset and, in certain cases, pursue the recipient of the asset to recover charges," said Rebecca Minto, senior associate at the law firm Mills & Reeve and director of the Association of Lifetime Lawyers. The "

Usually, a deprivation finding necessitates the following.

A transfer or sale of an asset (capital, real estate, investments, etc.) occurred. it). One of the main reasons for the disposal was to avoid care charges, though it wasn't the only one.

What councils take into account when deciding care costs.

Councils will take into account two primary factors in cases involving care costs deprivation of assets in order to determine whether the assets were distributed fairly.

First. foreseeability.

According to Minto, the local authority inquires as to whether the individual "could reasonably foresee needing care" at the time they donated the assets and whether they "reasonably have expected to need to contribute towards cost of that care."

Two. Time is not as important as intention.

The "seven year rule" for care funding is a common misconception, but it only applies to inheritance tax regulations. Rather than the amount of time that has passed, local authorities prioritize intention and foreseeability.

Although it need not be the sole or primary motivation, avoiding care charges must be a major goal behind the disposal.

According to Minto, "in this case, significant simply means that the intention to reduce your contribution to care fees was one meaningful part of the reasoning, and this threshold is very low."

What happens if asset deprivation is discovered by the local government?

The local government may take one of two actions if it determines that you or a loved one specifically gave away assets to avoid paying for care.

In order to deny or postpone funding and raise assessed contributions, the local authority may treat the person entering care as still owning the asset (known as notional capital). The transferee, or the person who receives the assets, may be pursued by the local government.

How to avoid being subject to the care fees regulations.

The local government will keep an eye out for certain indicators in order to find proof that assets were donated in order to avoid care costs.

Attorney Minto stated, "The following behaviors could lead to deprivation findings, especially when undertaken as health declines or care becomes foreseeable."

Direct gifts of money or property (e.g. The g. large, unusual, one-time transfers to family). Adding or changing the legal title of your house (e.g. (g). transferring ownership of the property to a minor). selling large assets at a discount (e.g. (g). a house worth £300,000 that was sold to a relative for £50,000. transfers into a trust with the primary goal of shielding assets from care costs. Any disposal (even with mixed motives) where avoiding care fees was a significant factor and care needs were reasonably foreseeable; using a deed of variation to redirect an inheritance; paying off someone else's debts; or sudden extravagant or unusual spending patterns that quickly deplete capital.

How assets can be given away legally.

According to Minto, "the law does not stop you from giving away assets, but it does give local authorities remedies if they can show that you did it with the intention of avoiding care charges."

From Mintos' legal perspective, she advised adhering to three primary safeguards for lawful gifting in order to stay on the right side of the law.

Give when you're healthy, self-sufficient, and don't have a legitimate need for care. Clearly state your sincere, non-care-related motivations for the gift. Maintain documents (e. The g. correspondence, adviser notes, side letters) that demonstrate your logic.

Instances of acceptable gifts.

Giving so-called legitimate gifts is acceptable; however, Minto provided some examples, including the following.

Supporting family for sincere reasons: e. A g. When you're well and don't need care, you can receive short-term hardship support, education costs, or a deposit for your first home. Returning money that has already been borrowed from a friend or family member is known as repayment. When avoiding care costs is not a major motivation, long-term estate and inheritance tax planning should be put in place well before any care needs are anticipated.

Required disregards: what are they?

Regarding deprivation of assets and care expenses, there are numerous "mandatory disregards."

Attorney Minto clarified: "The local authority must disregard capital if it falls within a mandatory disregard under the Care and Support (Charging and Assessment of Resources) Regulations 2014." A "

Examples of mandatory disregards are as follows.

The local government cannot include a non-estranged spouse, civil partner, or cohabitee in the assessment of care fees if the property is the person's primary residence and they are placed in care. If a close relative who is 60 years of age or older resides on the property, it must be ignored. if a close relative has a disability or incapacity. The property's value must be ignored if a dependent minor under the age of eighteen resides there. Additionally, the rules mandate that some forms of capital be ignored for a minimum of a predetermined amount of time.

When is a 12-week mandatory disregard applicable?

A person enters long-term residential care for the first time, or a prior period of property disregard ends abruptly (e. (g). when the eligible relative passes away). "For financial assessments under the Care Act, certain personal injury trust funds and certain types of compensation related to disability or illness are mandatorily disregarded," Minto stated.