Trusts, Gifts, and Equity Release: What Counts as Deprivation of Assets?

Trusts, Gifts, and Equity Release: What Counts as Deprivation of Assets?

In our previous blog, we explained what deprivation of assets means and how to avoid it when planning for care home fees. (If you haven’t read it yet, you can find it [here].)

Now, let’s talk about Trusts, Gifts, and Equity Release – three common ways people try to plan their finances. These tools can be helpful, but they can also raise red flags with the local authority if they are seen as attempts to avoid paying for care.

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Gifts with a "Reservation of Benefit" – what does this mean?

A Gift with the Reservation of a Benefit (GROB) is when you give something away but still continue to benefit from it. For example, if you gave your home to your children but continued to live in it, this would count as a GROB.

This type of gift is not exempt from Inheritance Tax, even if you live for seven years after making the gift. In fact, the amount of tax due could be higher than if you had simply kept the property in your name. You could also lose the main residence exemption for Capital Gains Tax (CGT), and in some cases, CGT could apply to both you and the person you gave the gift to.

There are some exceptions to the GROB rules, but they are complex. HMRC has introduced Pre-Owned Asset Tax (POAT) to close loopholes where people try to avoid GROB rules.

If a transfer is seen as a GROB designed to avoid paying for care, the local authority can add the asset back into your estate. This means that anything you gave away could be treated as though you still own it and maybe used to pay for care fees or inheritance tax.

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Can a Trust be seen as deprivation of assets?

A Trust is a legal arrangement where you transfer assets, such as property or money, to Trustees, who then manage them for someone else’s benefit (the beneficiary). Once you place assets into a Trust, you are no longer the legal owner, meaning your control over those assets is limited or none at all.

There are different types of Trusts, each with their own pros and cons. In some cases, a Trust can be a useful way to protect assets –but it can also be viewed as deliberate deprivation of assets. During a financial assessment for care fees, the local authority will consider both what you currently own and what you previously owned.

Trusts can also have Inheritance Tax implications, which vary depending on the type of Trust and the value of the assets. For example:

1. Anniversary and exit charges may apply.

2. If you transfer your home into a Trust and its value exceeds the Inheritance Tax threshold, it could trigger an immediate tax charge.

3. The transfer could also be treated as a chargeable disposal for Capital Gains Tax (CGT).

If you still benefit from assets in the Trust, this could also be classed as a Gift with Reservation of Benefit (GROB), which can lead to tax issues and possibly be viewed as deliberate deprivation of assets.

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Equity Release – could it count as deprivation of assets?

Equity release is a way for people aged 55 or older to unlock the value of their home and turn it into tax-free cash. The most common type is a lifetime mortgage – a long-term loan secured against your property. There are other forms of equity release too, each with its own pros and cons.

While equity release can seem attractive because of the immediate access to tax-free cash, there are important factors to consider:

1. The interest on the loan grows over time, which means you (or your estate) could owe more than expected.

2. It may affect your future housing options, as your home will have a charge against it.

3. It can impact means-tested benefits, as the cash you receive is counted as part of your savings.

If you release equity and then give the money away (for example, to your children), the local council may view this as deliberate deprivation of assets. Even if your savings fall below the care funding threshold, the council could still require you to pay for care in full if they believe the funds were given away to avoid charges.

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What if I gave my money or home away years ago?

The timing of a gift or transfer matters. The local authority will look at when you reduced your assets and ask:

1. At the time, could you reasonably have expected to need care and support?

2. Was there a clear reason for the gift that had nothing to do with avoiding care costs?

The Care and Support Guidance recognises that people should be treated with dignity and respect and should be free to spend their money as they wish. If you were fit, healthy, and had no reason to think you would need care when you gave away money or property, this may not count as deprivation of assets.

However, if the local authority believes the transfer was made to avoid paying for care, they can still treat you as if you still own the asset when calculating care fees.

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Important to Know

The rules on deliberate deprivation of assets mean it is impossible to predict with certainty how the council will view a past transfer. Local authorities usually won’t give advice in advance about how they might treat a gift or asset transfer later – they look at the situation at the time of the financial assessment.

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How Burtons Can Help?

With offices across Kent and Sussex, the expert solicitors at Burtons Solicitors – including our teams in Chatham, Sidcup, Hailsham, Walderslade, and Pembury (Tunbridge Wells) – are here to guide you through every step of planning and protecting your assets.

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