What is 'Deprevation of Assets'?
Deprivation of assets, is a term essentially meaning purposefully disposing of assets in an attempt to make it look like you are less well off than you are! – The term is commonly associated with government/council means testing especially in relation to care costs. Many wonder whether it's possible to give away their assets to ensure that they can qualify for state support. The practice has been common in the past and continues to be used and is the reason why the government have been prompted to conduct a strict Means Test to anyone becoming an applicant for support. Giving your assets away deliberately, can cause a whole host of problems for the person giving the assets away and those receiving those assets.
The most common methods of asset deprivation:
- Deliberately giving away the family home
- Giving Money away
- Excessive spending
If you gave away your family home, it could cause a series of other problems in addition to a possible count of deprivation of assets. For example if you gave your home to your children and carried on living there, and they were declared bankrupt or divorced, they might have to sell the property to satisfy any claims made on them, potentially making you homeless.
...and the home has had to be sold, to pay for ongoing care fees.
Also, it is important to note that even if you have gifted your home away, hoping to benefit from the seven year rule, there have been cases where the house has still been taken into account for a means test, and the home has had to be sold, to pay for ongoing care fees.
- The transfer of a property may be treated as “deliberate deprivation” by Local Authority Social Services (LASS) or the Department for Work & Pensions (DWP) and result in no financial assistance being forthcoming when needed in relation to the provision of care because the value of the property will be deemed to still be in the transferor’s estate.
- An outright gift of the home to someone other than the home occupier will mean that the capital gains tax (CGT) principal private residence (PPR) relief for owner occupation will not apply to the property in the future. In addition there will be no tax free uplift to market value on the death of the elderly person as the owner is a separate person.
- Lifetime gifts do incur capital gains tax (CGT). The difference between the purchase price of the property and the market value at the date of the gift would be taxed. The tax rate can be as much as 28% depending on the amount of gain and overall income level of the recipient.
- SDLT (Stamp Duty) may be payable on the transaction if it is styled to be a ‘sale’ at market value rather than a gift.
- Under the Pre-Owned Assets taxation rules, the donor may be subject to an Income Tax charge after the transfer for continuing to occupy the property on the annual rental value of it unless rent is paid for its continued use.
- With the best intentions in the world, the relatives or other people who are in receipt of the gift may not fulfil their side of the bargain/agreement, for example they may not help pay any resultant care fees in excess of the local tariff taking away potential choice of care home, or place undue pressure on the elderly person to leave the property sooner than they'd wished. Even if they would like to help it may be impossible because the asset is part of their matrimonial pot on divorce or their estate for the purpose of meeting their own debts.
Giving Money Away
Giving away money can also be deemed as Deprivation of Assets. An investigation could show that you have purposely given gifts of money to somebody, in an attempt to not pay for care fees.
Excessive or Reckless Spending
Excessive spending is another classic way of being exposed for Deprivation of Assets. Much like giving away money, intentional or erratic spending can also regard you with intentional Asset Deprivation.
Age Concern list examples of what could be seen as deprevation of assets;
- Making a lump-sum payment as a gift
- Sudden substantial expenditure
- Assets have been converted into another form that is disregarded such as personal possessions
- Extravagant living, such as gambling
- Assets have been used to purchase an investment bond with life insurance
- Selling assets for less than their true value
It is up to the owner of the asset to prove that they no longer possess the asset. Disposal of capital is not necessarily carried out to avoid a charge for care or gain assistance sooner than would otherwise have been the case. The local authority have to prove the intention before it can take transferred capital into account.
With so much at risk, it is the right decision to take our specialist advice to enable you to make informed decisions about your possible care funding options. Our trained consultants can discuss your current circumstances. For peace of mind contact Assured Wills Southampton today, representing the best in Estate Planning and Asset Protection on 01795 501 036