This annex covers:
- the deprivation of capital in order to avoid or reduce care and support charges
- the deprivation of income in order to avoid or reduce care and support charges
The purpose of this annex is to provide local authorities with detailed guidance on how to respond when they suspect that a person has deliberately deprived themselves of assets in order to avoid or decrease the amount they are asked to pay towards any care and support charges. For the purposes of this section, ‘assets’ mean capital and/or income.
Setting the context
1) A local authority can choose whether or not to charge a person where it is meeting needs. Where it thinks it would charge the person for meeting at least some of the needs, it must carry out a financial assessment which may be a light touch assessment where appropriate.
2) The financial assessment will need to look across all of a person’s assets – both capital and income – decide which is which and assess those assets according to the regulations and guidance. A local authority therefore must also refer to Annex C on the treatment of income and Annex B on the treatment of capital before conducting a financial assessment.
3) When undertaking or reviewing a financial assessment a local authority may identify circumstances that suggest that a person may have deliberately deprived themselves of assets in order to reduce the level of the contribution towards the cost of their care. In such circumstances, the local authority should have regard to this guidance. Clearly, local authorities should treat this issue with sensitivity and care.
4) People should be treated with dignity and respect and be able to spend the money they have saved as they wish – it is their money after all. Whilst the Care Act 2014 represents an important step forward in redefining the partnership between the state and the individual, it is important that people pay the contribution to their care costs that they are responsible for. This is important to the overall affordability of the care and support system. A local authority should therefore ensure that people are not rewarded for trying to avoid paying their assessed contribution.
5) But deprivation should not be automatically assumed, there may be valid reasons why someone no longer has an asset and a local authority should ensure it fully explore this first. However, the overall principle should be that when a person has tried to deprive themselves of assets, this should not affect the amount of local authority support they receive.
What is meant by deprivation of assets?
6) Deprivation of assets means where a person has intentionally deprived or decreased their overall assets in order to reduce the amount they are charged towards their care. This means that they must have known that they needed care and support and have reduced their assets in order to reduce the contribution they are asked to make towards the cost of that care and support.
7) Where this has been done to remove a debt that would otherwise remain, even if that is not immediately due, this must not be considered as deprivation.
Has deprivation of capital occurred?
8) It is up to the person to prove to the local authority that they no longer have the asset. If they are not able to, the local authority must assess them as if they still had the asset. For capital assets, acceptable evidence of their disposal would be:
(a) a trust deed
(b) deed of gift
(c) receipts for expenditure
(d) proof that debts have been repaid
9) A person can deprive themselves of capital in many ways, but common approaches may be:
(a) a lump-sum payment to someone else, for example as a gift
(b) substantial expenditure has been incurred suddenly and is out of character with previous spending
(c) the title deeds of a property have been transferred to someone else
(d) assets have been put in to a trust that cannot be revoked
(e) assets have been converted into another form that would be subject to a disregard under the financial assessment, for example personal possessions
(f) assets have been reduced by living extravagantly, for example gambling
(g) assets have been used to purchase an investment bond with life insurance
10) However, this will not be deliberate in all cases. Questions of deprivation therefore should only be considered where the person ceases to possess assets that would have otherwise been taken into account for the purposes of the financial assessment or has turned the asset into one that is now disregarded.
Example of where deprivation has not occurred
Max has moved into a care home and has a 50% interest in a property that continues to be occupied by his civil partner, David. The value of the property is disregarded whilst David lives there, but he decides to move to a smaller property that he can better manage and so sells their shared home to fund this.
At the time the property is sold, Max’s 50% share of the proceeds could be taken into account in the financial assessment, but, in order to ensure that David is able to purchase the smaller property, Max makes part of his share of the proceeds from the sale available.
In such circumstance, it would not be reasonable to treat Max as having deprived himself of capital in order to reduce his care home charges.
Example of assets to be considered
Emma gives her daughter Imogen a painting worth £2,000 the week before she enters care home. The local authority should not consider this as deprivation as the item is a personal possession and would not have been taken into account in her financial assessment.
However, if Emma had purchased the painting immediately prior to entering a care home to give to her daughter with £2,000 previously in a savings account, deprivation should be considered.
11) There may be many reasons for a person depriving themselves of an asset. A local authority should therefore consider the following before deciding whether deprivation for the purpose of avoiding care and support charges has occurred:
(a) whether avoiding the care and support charge was a significant motivation
(b) the timing of the disposal of the asset:
at the point the capital was disposed of could the person have a reasonable expectation of the need for care and support?
(c) did the person have a reasonable expectation of needing to contribute to the cost of their eligible care needs?
12) For example, it would be unreasonable to decide that a person had disposed of an asset in order to reduce the level of charges for their care and support needs if at the time the disposal took place they were fit and healthy and could not have foreseen the need for care and support.
Example of assets to be considered
Mrs Kapoor has £18,000 in a building society and uses £10,500 to purchase a car. Two weeks later she enters a care home and gives the car to her daughter Juhie.
If Mrs Kapoor knew when she purchased the car that she would be moving to a care home, then deprivation should be considered. However, all the circumstances must be taken into account so if Mrs Kapoor was admitted as an emergency and had no reason to think she may need care and support when she purchased the car, this should not be considered as deprivation.
Has deprivation of income occurred?
13) It is also possible for a person to deliberately deprive themselves of income. For example, they could give away or sell the right to an income from an occupational pension.
14) It is up to the person to prove to the local authority that they no longer have the income. Where a local authority considers that a person may have deprived themselves of income, they may treat them as possessing notional income.
15) The local authority will need to determine whether deliberate deprivation of income has occurred. In doing so it should consider:
(a) was it the person’s income?
(b) what was the purpose of the disposal of the income?
(c) the timing of the disposal of the income (at the point the income was disposed of could the person have a reasonable expectation of the need for care and support?)
16) In some circumstances the income may have been converted into capital. The local authority should consider what tariff income may be applied to the capital and whether the subsequent charge is less or more than the person would have paid without the change.
Local authority investigations
17) In some cases a local authority may wish to conduct its own investigations into whether deprivation of assets has occurred rather than relying solely on the declaration of the person. There is separate guidance under the Regulation of Investigatory Powers Act 2000 that has recently been updated. That sets out the limits to local authority powers to investigate and local authorities should have regard to it before considering any investigations.
What happens where deprivation of assets has occurred?
18) If a local authority decides that a person has deliberately deprived themselves of assets in order to avoid or reduce a charge for care and support, they will first need to decide whether to treat that person as still having the asset for the purposes of the financial assessment and charge them accordingly.
19) As a first step, a local authority should seek to charge the person as if the deprivation had not occurred. This means assuming they still own the asset and treating it as notional capital or notional income.
20) If the person in depriving themselves of an actual resource has converted that resource into another of lesser value, the person should be treated as notionally possessing the difference between the value of the new resources and the one which it replaced. For example, if the value of personal possessions acquired is less than the sum spent on them, the difference should be treated as notional resource.
Recovering charges from a third party
21) Where the person has transferred the asset to a third party to avoid the charge, the third party is liable to pay the local authority the difference between what it would have charged and did charge the person receiving care. However, the third party is not liable to pay anything which exceeds the benefit they have received from the transfer.
22) If the person has transferred funds to more than one third party, each of those people is liable to pay the local authority the difference between what it would have charged or did charge the person receiving care in proportion to the amount they received. 23) As with any other debt, the local authority can use the county court process to recover debts, but this should only be used after other avenues have been exhausted. When pursing the recovery of charges from a third party, a local authority must read Annex D on debt recovery.
Example of liability of a third party
Mrs Tong has £23,250 in her savings account. This is the total of her assets. One week before entering care she gives her daughters Louisa and Jenny and her son Frank £7,750 each. This was with the sole intention of avoiding care and support charges.
Had Mrs Tong not given the money away, the first £14,250 would have been disregarded and she would have been charged a tariff income on her assets between £14,250 and £23,250. Assuming £1 for every £250 of assets, this means Mrs Tong should have paid £36 per week towards the cost of her care.
After 10 weeks of care, Mrs Tong should have contributed £360. This means Louisa, Jenny and Frank are each liable for £120 towards the cost of their mother’s care.