Care Home Fees and Inheritance Tax UK 2026: Deliberate Deprivation, Care Act 2014, Asset Protection Trusts, the 7-Year Rule, and What Actually Works
The IHT 7-year rule does NOT protect you from care home fees assessment. There is no time limit on deliberate deprivation under the Care Act 2014. Planning that reduces IHT may still leave you exposed to care fees — or vice versa.
No Fixed Look-Back Period for Care Fees — Unlike the IHT 7-Year Rule
A gift made 10 or 15 years ago can still be treated as deliberate deprivation (Care Act 2014 s21) for care fees purposes if the local authority can show the main purpose was to reduce capital. The IHT 7-year rule provides NO protection against care fees means testing. Plan early, document IHT motivations, and seek independent advice from a solicitor experienced in both regimes.
| Issue | IHT Rule | Care Fees Rule | What Actually Works |
|---|---|---|---|
| The 7-year rule vs deliberate deprivation — critical difference | IHT 7yr rule (s3A IHTA 1984): a Potentially Exempt Transfer (PET) becomes fully exempt if the donor survives 7 years from the date of the gift. If the donor dies within 7yr: taper relief applies from year 3. IHT: after 7yr, the gift is COMPLETELY outside the estate — no IHT regardless of the reason for the gift or what the donor knew about their health. The IHT 7yr rule is a HARD LEGAL RULE — HMRC cannot challenge a gift that meets the timing and other requirements (not a GWR) even if the obvious motive was IHT avoidance. HMRC does not need to assess the donor's 'purpose' for the gift in an IHT context (beyond the GWR rules). | Care Act 2014 deliberate deprivation: NO fixed time limit. A gift made 15 or 20 years before care is needed can STILL be challenged if the local authority can show the PREDOMINANT PURPOSE of the gift was to avoid care fees assessment. The test (Care and Support Statutory Guidance para 8.450): was it a significant motivation that the person was seeking to reduce their capital? Local authority has the burden of proving deliberate deprivation. There is no safe passage of time after which the gift is immune. However: in practice, local authorities rarely challenge gifts made many years before care is needed, where health was good at the time, and where there were other legitimate reasons for the gift (IHT planning; helping children onto the housing ladder; normal family gifting). The risk increases if: the gift was made shortly before care needs arose; the person was already unwell; the gift was to a close family member who can be contacted for recovery. | A gift made for IHT purposes (PET — s3A IHTA) when the donor was in good health and care was not foreseeable: LOW risk of deliberate deprivation challenge. The same gift made when the donor was already receiving a diagnosis, or shortly after entering care: HIGH risk. Key: the MOTIVE at the time of the gift is what matters for care fees. If IHT motive was GENUINE and primary — care fee protection was incidental — the gift is more defensible. Document the reason for the gift at the time of making it (letter of wishes, solicitor file note). |
| The family home and care fees | IHT: the family home is an asset of the estate; subject to IHT at 40% on the value above the NRB. RNRB (s8D IHTA) provides up to £175k additional relief if the home passes to direct descendants. Gifting the home (as a PET) starts the 7yr clock; if the donor continues to live in the home: GIFT WITH RESERVATION OF BENEFIT (FA 1986 s102) applies — the home remains in the estate for IHT regardless of the gift (unless the donor pays full market rent to the recipient). | Care Act 2014: the family home is EXCLUDED from the capital assessment for care fees if: (a) the spouse, civil partner, or partner still lives in the property; OR (b) a dependent relative over 60 still lives in the property; OR (c) a child under 18 of the person lives there; OR (d) an incapacitated relative lives there. If the home is excluded: it is not counted in the financial assessment — it cannot be forced sold to fund care while these people occupy it. If NONE of these apply (e.g., both spouses in care; no qualifying occupant): the home IS counted in the capital assessment after 12 weeks (12-week property disregard) and the local authority may place a charge on it (deferred payment agreement — DPA) to be recovered from the estate when the property is sold or the person dies. | For a couple where one goes into care: the home is excluded (spouse still lives there). IHT planning: the couple can plan the home for IHT independently of care fees (since the home is excluded from care fees assessment while the other spouse lives there). For a single person entering care: the home IS assessed after 12 weeks. Planning must have been done BEFORE care was imminent (and legitimately). Deferred payment agreement (DPA): local authority places a charge on the home; care is funded as a 'loan'; recovered when the home is sold or on death. The estate then settles the local authority debt from the home sale proceeds. |
| Asset Protection Trusts (APTs) — do they work? | IHT impact of an APT: assets settled into a discretionary trust are a CLT (Chargeable Lifetime Transfer) — 20% entry charge on the excess above the NRB (if settled amount > NRB). 10-yr periodic charges (s64 IHTA — up to 6% per decade). Exit charges (s65 IHTA). BPR/APR do not apply to most domestic residential assets in a trust. An APT containing the family home: the home is not a business asset; no BPR/APR; the trust value is relevant property. After 7yr (PET equivalent for CLTs does not apply): the entry CLT entry charge is final; but the periodic/exit charges continue indefinitely. IHT: APTs are generally WORSE for IHT than simply leaving the home in the estate (where the RNRB and tRNRB up to £350k provide significant relief). | Care fees: an APT is NOT a guaranteed protection from care fees. The local authority CAN challenge the transfer of the home into the trust as deliberate deprivation of assets (ss21-29 Care Act 2014). If the MAIN purpose of the APT was to avoid care fees: notional capital treatment applies — the trust assets are counted as if still owned by the settler. The local authority may also pursue the RECIPIENT (trustees) to recover the care fees debt. Marketed APTs ('home protection trusts', 'family protection trusts', 'flexible life interest trusts for property') are frequently challenged by local authorities. There are solicitors and financial advisers who actively market these trusts — their success rate in avoiding care fees is overstated. Many clients who relied on these trusts have found that the local authority successfully challenged them. | What is generally more effective than an APT: (1) A WILL with a life interest trust for the surviving spouse: if the house passes into a life interest trust on the first death (spouse has a right to live there), the house is NOT in the surviving spouse's estate for care fees purposes — it is held in trust; the surviving spouse has a right of occupation but not an asset they 'own' for assessment purposes. This is a LEGITIMATE structure. (2) Severing joint tenancy — converting from joint tenants to tenants in common — and then each spouse making a will to give their share of the property in trust (life interest) for the survivor: the surviving spouse's portion of the house (inherited from the deceased via a life interest trust) is excluded from the care fees assessment. TLATA 1996 governs co-ownership. Seek specialist advice. |
| NHS Continuing Healthcare (CHC) — total exclusion from means testing | No IHT relevance: NHS Continuing Healthcare is a clinical funding decision, not an IHT matter. If CHC is granted, the NHS pays the full cost of care — the estate's IHT position is unaffected by CHC (though the estate may be preserved if CHC avoids large private care fees). | NHS CHC funding: if an individual's PRIMARY NEED is for health care (not social care), the NHS must fund the full cost of care — including residential care in a nursing home. The Care Act 2014 financial assessment (means test) does NOT apply to CHC-funded care. The individual pays NOTHING towards care costs from their capital. Who qualifies: those with severe, complex health conditions — often related to dementia, brain injury, multiple sclerosis, Parkinson's disease with complications, cancer requiring palliative care, or complex clinical needs. Assessment: the NHS uses the 'National Framework for NHS Continuing Healthcare' (2018 Revised Framework) — 12 'care domains' scored; if the PRIMARY NEED is for health: CHC is awarded. The local authority does NOT conduct a financial assessment for CHC-funded individuals. | Challenge a CHC refusal: many people who qualify for CHC are wrongly assessed as 'social care' by underfunded local authorities (who have an incentive to push funding to the NHS). Legal challenge: appeal the CHC refusal through the NHS England CHC review process; Independent Review Panel. Retrospective CHC: if it can be shown that CHC should have been awarded in the past (and the person paid their own care fees), retrospective claims can be made — recovering fees paid to the care home. A solicitor specialising in NHS CHC and care fees can advise. IHT interaction: if CHC is secured, the estate is preserved (no large care fees depleting the estate) — more IHT planning options available. Consider CHC eligibility BEFORE making large IHT planning gifts (gifting a large sum to children may reduce IHT but leaves the estate exposed to care fees if CHC is not secured). |
| Gifting for IHT — interaction with care fees | PETs (s3A IHTA 1984): cash and asset gifts to individuals are PETs — outside the estate after 7yr. Annual exemption (s19 IHTA): £3,000/yr — immediately exempt (not a PET). Small gifts (s20 IHTA): up to £250/yr per recipient — immediately exempt. Normal income expenditure (s21 IHTA): regular gifts from income — immediately exempt. IHT goal: reduce the estate below the NRB/RNRB threshold by making regular exempt gifts and occasional PETs. | Care fees: the same gifts MAY be challenged as deliberate deprivation if: (1) the person was already in poor health (care was foreseeable); (2) the gifts were made shortly before care needs arose; (3) the main purpose was to reduce capital for care fees. SAFE GIFTING for care fees purposes: (a) gifts made when in good health and care was not foreseeable; (b) gifts with a genuine IHT motivation documented at the time; (c) normal gifts to family (children buying houses; weddings; education costs) that would have been made regardless of care fears; (d) annual exempt gifts (£3,000/yr) — harder to challenge as deliberate deprivation for a modest sum made regularly. RISK GIFTING: (a) a single large gift of the entire savings shortly before entering care; (b) transfer of the home to children when already in a care home or on a care home waiting list; (c) any gift made after a care needs assessment has begun. | Integrated IHT and care planning: the most effective approach is to plan EARLY (in good health; long before care is anticipated). Make regular PETs and use annual exemptions consistently from early to mid-retirement. This creates a strong paper trail of gifts made for IHT and family reasons, not care avoidance. Document each gift at the time (letter or email noting the reason). This reduces the local authority's ability to characterise the gifts as deliberate deprivation. Seek a solicitor who understands BOTH IHT planning AND care fees law — these are different specialisms and the interaction is complex. |
Care home fees IHT UK 2026. Care Act 2014 (England): s9 duty to assess care needs; s13 financial assessment; s17 charging for care and support; ss21-26: deprivation of assets — deliberate deprivation; s21: where a local authority is satisfied that a person has deprived themselves of assets to reduce the amount they are liable to pay, the authority may treat the person as still possessing the asset ('notional capital'). Social Services and Well-being (Wales) Act 2014: equivalent provisions in Wales. Care and Support (Charging and Assessment of Resources) Regulations 2014 (SI 2014/2672): capital and income assessment rules; upper capital limit (currently £23,250 in England; higher in Wales). Care and Support Statutory Guidance 2014 (updated 2023), Chapter 8: financial assessment and charging; para 8.450: deliberate deprivation — 'where a local authority is satisfied that a person has deprived themselves of an asset in order to reduce the amount they are liable to pay for care, the local authority can charge as if the person still had that asset.' No fixed look-back period in statute; unlike the Benefits Agency Contributions Act or DWP rules (which have a 6-month look-back for deprivation in relation to means-tested benefits — fundamentally different). Key cases: Chief Adjudication Officer v Quinn and Gibbon [1996] (DWP deliberate deprivation — 'principal or significant purpose'); Yule v South Lanarkshire Council [2001] (Scotland equivalent); CJSA/5394/1997 (DWP Commissioner — relevant for purpose test). Care fees means test: the local authority considers a list of capital resources; the 'notional capital' rule means assets given away can be treated as if still owned. Recovery: the local authority has limited powers to recover from third parties (recipients of gifts) — under s70 Care Act 2014, recovery from third parties is possible in some circumstances where the authority has been misled. NHS CHC: National Framework for NHS Continuing Healthcare (2022 Revised — England; NHS Wales equivalent). Domains: behaviour; cognition; communication; psychological/emotional needs; mobility; nutrition; continence; skin integrity; breathing; drug therapies; altered states of consciousness; other significant care needs. Primary health need: the overall need and the nature, complexity, intensity, and unpredictability of the person's needs must be primarily health needs. The 'decision support tool' (DST) is used to reach a CHC determination. Retrospective CHC claims: no statutory limitation period (though NHS England guidance suggests a 6-year look-back as practical limit; disputed — legal challenge possible for older periods). Property disregard: the home is disregarded in the financial assessment if the following occupants remain: spouse/civil partner/partner; child under 18; incapacitated relative; relative aged 60+. 12-week property disregard: the home is also disregarded for the first 12 weeks of a permanent care placement — giving time to sell or arrange deferred payment. Deferred Payment Agreement (DPA): the local authority places a charge on the property; funds the care as a loan; recovered when the home is sold or on the person's death; charged at a fixed interest rate (currently 3.88% pa in England 2026). Life interest trust in a will: if the deceased's share of the property passes into a life interest trust (the survivor is the income beneficiary/right to occupy), the survivor has a beneficial interest in the trust but NOT an outright ownership of the asset — local authority CANNOT count the trust assets as the survivor's capital (CRAG para 6.062 — replaced by Care Act Guidance but principle preserved). TLATA 1996 (Trusts of Land and Appointment of Trustees Act): governs co-ownership; severing joint tenancy converts the co-owned property to tenants in common (each person owns a defined share); each can then will their share separately (e.g., into a life interest trust for the survivor). Asset protection trusts (APTs): marketed widely; challenged by local authorities under Care Act s21; IHT consequences (CLT + periodic charge) often make them counterproductive from an IHT perspective; the RNRB on the home (s8D IHTA — up to £175k + tRNRB up to £350k combined) is lost when the home is in a relevant property trust (the RNRB requires the home to pass to direct descendants from the estate — not from a relevant property trust in most circumstances; specialist advice needed on the RNRB interaction with APT).
Frequently Asked Questions
Can I give my house to my children to avoid care home fees?
Not safely — and probably not effectively. Giving your house to your children is a 'deliberate deprivation of assets' under ss21-29 Care Act 2014 if the main purpose was to reduce your capital for the local authority care fees means test. The local authority can treat the house as 'notional capital' — counting it as still yours — meaning you must fund your own care as if you still owned it. There is NO fixed time limit on deliberate deprivation (unlike the IHT 7yr rule). A gift made 10 or 15 years ago can still be challenged if the purpose was care fees avoidance. If your spouse or a qualifying dependent relative lives in the house: the house is EXCLUDED from the care fees assessment anyway — giving it away in this case has no care fees benefit and creates IHT, CGT, and SDLT complications. Exception: if the house was transferred many years ago in good health for genuine IHT or family planning reasons — the deliberate deprivation challenge is much weaker (low chance of success for the local authority). Always take specialist legal advice before transferring property.
What is deliberate deprivation of assets for care home fees?
Deliberate deprivation (Care Act 2014 ss21-29 and Care and Support Statutory Guidance Chapter 8): a local authority can treat a person as still owning an asset if they deliberately reduced their capital (or their income/assets) to reduce the amount they pay towards care costs. 'Notional capital': the local authority counts the transferred asset as if the person still has it — and calculates care fees contributions as if the asset were available. There is NO FIXED LOOK-BACK PERIOD — unlike the IHT 7-year rule. The key test: was the MAIN (or a significant) motivation for the transfer to avoid care fees? The local authority must prove this (burden of proof: balance of probabilities). Factors that REDUCE the deliberate deprivation risk: the transfer was made many years ago; the person was in good health with no imminent care need; there were genuine IHT or family reasons for the transfer (documented). Factors that INCREASE the risk: transfer made after care was needed or imminent; the person was already in poor health; a large single transfer of all assets; no independent legal advice at the time.
Does the 7-year rule for inheritance tax apply to care home fees?
No — the IHT 7-year rule (s3A IHTA 1984) does NOT apply to care home fees assessments. The IHT rule: if you survive 7 years after making a gift (PET), the gift is completely outside the IHT estate — HMRC cannot challenge it regardless of the donor's health or motivation at the time. The care fees rule: the deliberate deprivation rule under the Care Act 2014 has NO fixed time limit. A gift made more than 7 years ago can still be treated as deliberate deprivation for care fees purposes if the local authority can show the main purpose was to reduce capital for care fees. In practice: a gift made 7+ years ago in good health, with genuine IHT motivations documented, is very unlikely to be successfully challenged by a local authority — but it is legally possible. The two regimes are completely separate. A gift that is IHT-exempt (because 7yr have passed) can still be 'notional capital' for care fees purposes.
Do asset protection trusts work for care home fees?
Often not — and they can make things worse. Many 'asset protection trusts', 'home protection trusts', or 'family protection trusts' marketed to protect against care home fees are challenged by local authorities as deliberate deprivation of assets. If the main purpose of placing the home in a trust was to avoid care fees: the local authority treats the trust assets as notional capital. The trust does NOT prevent the local authority from counting those assets in the means test. IHT consequences of an APT: putting the home in a discretionary trust is a CLT (chargeable lifetime transfer) — 20% entry charge on the excess above the NRB; 10-yr periodic charges (up to 6% per decade); exit charges. This is generally WORSE for IHT than leaving the home in the estate (where the RNRB up to £175k and tRNRB up to £350k combined provide significant relief). What may work for care fees and IHT: a life interest trust in a will (so the surviving spouse has a right to live in the home but does not 'own' it for care fees assessment); severing the joint tenancy and each spouse leaving their share in trust; NHS Continuing Healthcare if eligible. Always seek specialist independent legal advice.
What is NHS Continuing Healthcare and how does it affect care home fees and IHT?
NHS Continuing Healthcare (CHC) is NHS funding for the full cost of care — including residential nursing home care — where the individual's PRIMARY NEED is for health care (not social care). If CHC is awarded: the NHS pays the full care home cost; the individual pays nothing from their own capital; the local authority financial means test (and the care home fees depletion of the estate) does NOT apply. Who qualifies: people with severe, complex, or unpredictable health needs — often those with advanced dementia, brain injury, cancer requiring palliative care, multiple sclerosis, or complex clinical needs. Assessment: NHS uses the National Framework for NHS Continuing Healthcare (2022 update) — 12 care domains scored; 'primary health need' determination. Many people who qualify for CHC are wrongly assessed as social care — retrospective claims can recover fees previously paid. IHT interaction: if CHC is secured, the estate is preserved from large care costs — more assets remain for IHT planning and for beneficiaries. Specialist solicitors can challenge CHC refusals and make retrospective claims. Apply for CHC assessment before assuming private care fees are inevitable.
A Will Is the Foundation — Even When Planning for Care Fees
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