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For many of us, our home is our biggest asset – and something we want to pass on to our children or other loved ones.
But if you need to go into a care home in later life, your property might have to be sold to help pay the care fees. So is gifting your home to your children the solution?
While it can seem like a smart move, this can backfire badly, as we’ll explain.
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If you need to move into a care home permanently, then one of the big questions is who will foot the bill.
The weekly cost of a residential care home can vary a lot, depending on the amenities as well as where in the country you live. Even estimates of the ‘average’ cost vary significantly. For example, Age UK figures (published in 2024) suggest £49,348 per year for residential care and £65,884 for nursing care, while carehome.co.uk suggests £67,496 for residential care and £79,820 for nursing care. Care home comparison website Lottie quotes average costs that are even higher (£73,112 for residential care or £81,016 for a nursing home).
Who pays for care home costs depends on a financial assessment carried out by your local council.
If you are found to have assets worth over £23,250 then you will have to pay your own care fees in England and Northern Ireland. In Wales the threshold is £50,000. If you have less than that – either now or after paying your care home fees for a while – then the council will contribute towards your costs.
In Scotland, the situation is a bit different. You’ll pay some of the cost of care home fees if you have over £22,000 in savings, and the full cost if you have more than £35,500 in savings. If you’re assessed as having personal or nursing care needs, your council should provide a flat rate payment for these. But you’ll still have to contribute to your care home fees, since some of the fees are made up of accommodation and living costs.
Whichever part of the UK you live in, when calculating your assets, your home will usually be included. But this isn’t always the case.
Your home will not be counted among your assets if any of the following people will still live there:
Angela Kerr, director of the HomeOwners Alliance, adds that there is also a ‘grace period’ of 12 weeks when you first go into permanent residential care during which councils do not factor in the value of the home. This gives you time to decide whether to sell the property, rent it out or arrange a deferred payment agreement.
“This gives people breathing space to sort out finances,” she says. “If instead you are receiving care and support at home, the value of your home is also not included in the means test.”
The idea of having to sell your home to pay for a care home can be devastating. To avoid it, some people try to give their home away – or put it into a trust – in the hope the council won’t then be able to include it in their financial assessment.
Unfortunately, this can be viewed as a ‘deliberate deprivation of assets’ – no matter how long ago you handed over your home.
If the council believes you purposefully gave your home away to avoid care costs, they can still use its value in determining your wealth. There is no time limit on these rules. Even if you gave away your home decades before care is needed, the sale could still be considered and queried by the local authority.
Justin Modray, from Candid Financial Advice, says that while giving away your home, for example to your children, might feel like a tempting way to try and avoid hefty care home fees by reducing your wealth, it’s full of potential pitfalls.
“The most obvious being, you lose your home, and the local authority may disregard the sale in any case if they feel you did so to avoid paying for social care.”
You may think the gift will also reduce an inheritance tax (IHT) bill but there are issues around this too.
Firstly, you would need to live for seven years after the gift for the property to be exempt from IHT. Secondly, if you still live in the property after selling it, then unless you pay market rent to the person you gave it to, the ‘gift with reservation of benefit’ rules will apply, meaning it will still count as part of your estate for IHT.
Lucy Cresswell, a solicitor at Vault Private Clients, adds that you can set up a property protection trust to remove your home from your ownership. But because rules around deprivation of assets are complex, she strongly recommends seeking tailored legal advice.
There is no guarantee the trust would protect your home, as the council can assess assets you have previously owned, as well as those you still own.
If you go into a care home and your local council calculates that you are not eligible for financial assistance, you’ll have to find the money to pay your care home bills. However this doesn’t automatically mean you have to sell your property immediately.
Councils offer deferred payment arrangements, where they pay the care fees and place a charge on your home. The money is repaid later (usually after you die or the house is sold). This lets people keep the home during their lifetime.
You could also choose to rent out the property to fund care costs.
Equity release might be an option for some people, but only if you’re looking to fund care in your own home, and you don’t qualify for local authority support. Most equity release arrangements require you to repay the loan in full if you move permanently into a care home.
It’s a good idea to take professional advice about the best options.
If you do think you will have to self-fund if you end up in a care home, then it’s worth doing some preparation for how you will foot the bill.
“This means looking at your savings, investments and pensions and working out how long they might last, if required, based on typical care fees for your area,” says Modray. “If most of your wealth is tied up in your home, you could consider downsizing to release cash.”
You could also look at making plans for how you could avoid having to go into a care home. Kerr says: “Staying in your own home for as long as possible often has important advantages: familiar surroundings, community ties, comfort, maintaining independence, and preserving relationships with friends and neighbours.”
In many cases, home care or assisted living can be arranged flexibly to your needs so you can scale up support without having to uproot your life. For some people this can offer better quality of life, often at lower cost than going into a full residential home immediately.
Giving away your home to avoid care home fees is unlikely to succeed, as councils have the power to include past assets in their calculations if they think you deliberately sold something to reduce your wealth.
A better approach may be to make a plan for how you can stay in your own home for as long as possible, alongside a financial strategy for how you will pay care home bills without being pushed into a forced house sale.
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