Home Protection Plans: the background.
Home protection plans are designed to help the many folk looking for ways of protecting their estate to pass it on to the children and grandchildren and to avoid it being wiped out by probate costs, creditors and wasters (usually married to a family member!)
Alternative to Home Protection Plans 1:
Giving the home away to the children is sometimes seen as the solution but can go seriously wrong:
- Your home may be sold to pay a childs divorce settlement.
- The Local Authority may decide it was fraudulent, bankrupt you and reverse the gift via a Court Order.
- Should you sell your home, perhaps to move, Capital Gains Tax will have to be paid on the increase in value since the gift, as you no longer have “principal private residence relief.” It is no longer your home and for tax purposes it is treated like an investment property.
Alternatives to Home Protection Plans 2:
There is also the misconception that if you give the home away at least 6 months before going into care, the local authority cannot touch it. There is a so called “six month rule” in the legislation but this is a rule applicable to a specific circumstance and should not be relied on. In the real world, many local authorities have rules of thumb; some will only look back over one or two years but others may look back over a much longer period. “Deliberate deprivation” is a relevant concept and makes things more difficult. We find it hard to credit that some home protection plans are “guaranteed” to avoid care fees when any plan set up with the deliberate intention of avoiding care fee is likely to be set aside when contested. But we are fairly cautious with other peoples homes, and don’t feel that getting your fee back, should the scheme goes wrong, makes up for losing your home.Cash strapped local authorities are cracking down on people who they think are trying to avoid paying care fees and they are becoming increasingly sceptical about people saying gifts were made due to the natural love and affection for their children. This guide covers these various points briefly and highlights a simple and uncomplicated approach to sheltering the family home through a recognised planning technique, which has a track record.
THE BASIC POSITION for Home Protection Plans
Those who cannot afford to pay privately for care must look to the local authority for funding or assistance with funding. The resident has a free choice of home, subject only to the fee level quoted, which is usually within the funding arrangements available to the local authority.
Both income and capital resources are assessed.
- Above capital of £24,000 no contribution will be made by the local authority.
- Capital below £14,250 a full contribution will be made by the local authority.
- Capital between £24,000 and £14,250 there is a partial contribution made by the local authority.
Virtually all income is counted. The principal exception relates to part of an occupational pension in certain circumstances. A small amount of income (currently £21.90 per week) is not assessed, amounting to little more than pocket money. This is literally intended to cover toiletries, hairdresser etc.
This guide concentrates on the family home. It is not a guide to other potentially assessable capital. Advice on other capital is available on request.
The starting position is that the home counts as capital for financial assessment purposes. The value of the home, or an interest in it, is taken account of as a capital asset. It comes into the reckoning for means testing at its market value, less 10% (assumed costs of sale) and less any mortgage liability. Once sold, the home simply comes in as cash.
The home is disregarded under certain circumstances:
- During the first 12 weeks of care.
- During temporary or respite care.
- If it is occupied by a husband, wife or unmarried partner.
- If it is occupied by a close relative over the age of 60 (or under the age of 16).
- If it is occupied by a relative under the age of 60 who is disabled.
The local authority may, at its discretion, ignore the value of the house if it is the permanent home of a carer, or in one or two other limited situations. Clearly the local authority’s discretion ought not to be relied on.