What are ‘deprivation of assets’ care cost rules? – and how to stick to them

Giving your money away to your loved ones when you are alive is one way to avoid them having to pay inheritance tax (in many cases). But what if you later need that money to pay for your care? HMRC might come knocking.

With an estimated four in five people aged 65 and over likely to require some level of looking after before they die, according to the 2025 House of Commons Committee Report on Adult Social Care Reform, millions of families could find themselves having to deal with the cost of care.

Many individuals will also be keen to leave an inheritance, however, and gifting the money during your lifetime is one of the best ways to help your loved ones avoid an inheritance tax bill, providing certain conditions are met (like the seven year inheritance tax rule).

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This clash between potentially paying for care and giving away money to loved ones can lead to a difficult juggling act in terms of timing any inheritances.

Give away the money too soon and you’ll have less income to enjoy yourself. But give the money away too late and then find you need care and you could fall foul of the ‘deprivation of assets’ rules, leading you or your loved ones into a fight with HMRC and potentially having to pay the money to the local authority.

We look at care fees annuities as a way to pay for care and whether you should get advice about care for a relative in separate articles.

Deprivation of assets rules – what are they?

Deprivation of assets occurs when a person knowingly reduces their capital – by gifting, transferring, spending, or restructuring it – in order to reduce the amount they would have to contribute towards their care costs.

Rebecca Minto, senior associate at law firm Mills & Reeve and director at the Association of Lifetime Lawyers, explained: “If a local authority decides deprivation has occurred, it can treat the person as if they still own the asset and, in some cases, pursue the recipient of the asset to recover charges.”

A deprivation finding typically requires that:

• There was a transfer or disposal of an asset (capital, property, investments, etc.). 
• Avoiding care charges was a significant intention behind the disposal (it need not be the only or main motive). 

What councils consider in care costs cases

In care costs deprivation of assets cases, councils will consider two main factors to judge if the assets were given away in a fair way:

1. Foreseeability

The local authority asks whether the person “could reasonably foresee needing care” at the time of they gave the assets away, and also that they could ”reasonably have expected to need to contribute towards cost of that care”, said Minto.

2. Intention over timing

A common misconception is that there is a “seven year rule” for care funding – but that exclusively belongs to the rules on inheritance tax. Instead, local authorities focus on intention and foreseeability, not the time that’s elapsed.

Avoiding care charges has to be a significant intention behind the disposal, though it need not be the only or main motive.

“In this case ‘significant’ simply means that the intention to reduce your contribution to care fees was one meaningful part of the reasoning,” said Minto, “and this threshold is very low”.

What if the local authority finds deprivation of assets?

If the local authority decides you or your loved one gave away assets specifically to avoid paying for care, it could do one of two things:

• The local authority can treat the person going into care as still owning the asset (known as ‘notional capital’), which can deny or delay funding and increase assessed contributions. 
•  The local authority may pursue the transferee (the recipient of the assets). 

Ways you can by caught by the care fees rules 

When it comes to looking for evidence assets were given away to avoid care fees, the local authority will keep its eye out for certain factors.

"The following behaviours could lead to deprivation findings, especially when undertaken as health declines or care becomes foreseeable,” said lawyer Minto.

• Outright gifts of cash or assets (e.g., large, one-off transfers to family that are out of character). 
• Transferring or adding someone to the legal title of your home (e.g., signing over the property to a child). 
• Selling significant assets at an undervalue (e.g., a £300,000 house sold to a relative for £50,000). 
• Transfers into trust where a significant purpose is to protect wealth from care charges. 
• Using a deed of variation to redirect an inheritance  
• Paying off someone else’s debts  
• Sudden extravagant or uncharacteristic spending patterns that rapidly deplete capital  
• Any disposal (even with mixed motives) where avoiding care fees was a meaningful factor and care needs were reasonably foreseeable. 

How to legitimately give away assets

“The law does not stop you from giving away assets,” Minto said, “but it does provide remedies to local authorities if they can show that you did it with the intention of avoiding care charges”.

To stay on the right side of the rules, from Minto’s legal view she recommended sticking to three main safeguards for legitimate gifting.

1. Gift while in good health, independent, and without reasonable expectation of needing care. 
2. Be clear about genuine, non-care-related reasons for the gift. 
3. Keep records (e.g., correspondence, adviser notes, side letters) that show your reasoning. 

Examples of legitimate gifts 

It’s fine to give so-called legitimate gifts – what constitutes legitimate varies but Minto gave some examples, such as:

• Helping family for genuine reasons: e.g., a deposit for a first home, education costs, or short-term hardship support, given when you are well and not anticipating care. 
• Repaying an existing loan: returning money previously borrowed from a relative or friend. 
• Long-term estate and inheritance tax planning implemented well before any care needs are foreseeable, where avoiding care fees is not a significant motive. 

What are mandatory disregards?

When it comes to deprivation of assets and care costs, there’s a whole raft of what’s known as ‘mandatory disregards’.

Lawyer Minto explained: “If capital falls within a mandatory disregard under the Care and Support (Charging and Assessment of Resources) Regulations 2014, the local authority must disregard it.”

The following are examples of mandatory disregards:

• If a property is someone’s main home and they go into care, but leave a non-estranged spouse/civil partner/cohabitee in occupation, then the local authority can’t take that into account as part of their care fees assessment.
• The property must be disregarded if occupied by a close relative aged 60 or above. 
• If a close relative is incapacitated/disabled.
• If a child under 18 who is dependent on the person lives in the property, the value must be disregarded. 

The regulations also require certain types of capital to be disregarded for at least a set period.

A mandatory 12-week disregard applies when:

• A person first enters permanent residential care, or
• A previous property disregard ends unexpectedly (e.g., the qualifying relative dies).

“Certain personal injury trust monies and some forms of compensation related to disability or illness are mandatorily disregarded for financial assessments under the Care Act,” Minto said.