Deprivation of Assets: How Local Authorities Get It Wrong

When a local authority becomes involved in funding your care, they will examine your financial position in detail. One of the most contentious issues that arises is the allegation that you have deliberately deprived yourself of assets to avoid paying care fees. If you receive such an allegation, you need to understand the legal test that applies and the steps you can take to challenge it.

What does deprivation of assets mean?

Under the Care Act 2014 and the Care and Support (Charging and Assessment of Resources) Regulations 2014, a local authority has power to treat you as though you still possess capital that you have disposed of. This is known as a "deprivation of assets" finding. The purpose is to prevent people from artificially reducing their capital by transferring assets away in order to avoid or reduce the cost of their care.

Section 49 of the Care Act gives local authorities this power. However, the power is strictly limited. The authority can only treat you as having disposed of assets if it is satisfied that you did so deliberately and with the intention of reducing the amount of your own contribution towards care costs.

The legal test: intention and timing

This is where many local authorities get it wrong. The legal test requires two things. First, the disposal must have been deliberate. Second, the local authority must demonstrate that avoiding or reducing care fees was a "significant" motivation for that disposal. It is not enough to show that the disposal had the effect of reducing the amount you would have to pay. The burden of proof rests with the authority, and it must be based on evidence, not mere suspicion.

Timing is critical. A person cannot have intended to avoid care costs if they could not reasonably have foreseen that they would need care at the time they made the disposal. For example, if you gifted money to your children ten years ago, when you were in good health and had no reason to anticipate future care needs, it would be very difficult for a council to argue that you did so to avoid care fees. By contrast, if you transferred significant assets to family members shortly after receiving a diagnosis of dementia, or after a fall that required hospital admission, the circumstances would be viewed very differently.

Common scenarios where disputes arise

Local authorities frequently encounter three types of asset disposal. The first is gifting property or transferring it into other names. Many people add adult children as joint owners of their home, intending to help with inheritance tax planning or to provide for eventual succession. This may or may not amount to a deprivation. The second scenario is transfer of savings or capital to family members. A person might give money to a child to help them buy a house, or to support a grandchild's education. Again, this may or may not be caught by the deprivation rules. The third common scenario is deliberate spending down of savings before care is needed, for example on holidays, home improvements, or gifts. Spending money on ordinary living expenses is not deprivation, but deliberately "burning through" capital to avoid contributing to care costs is.

In each case, the question is whether avoiding care fees was a significant motivation. A gift made for an entirely different reason, such as normal family inheritance or support, will not constitute deprivation even if it happens to have the effect of reducing the amount the authority can require you to contribute.

How local authorities get it wrong

We regularly see councils make errors in deprivation cases. The most common mistake is applying the wrong test. Some authorities treat any disposal of capital as deprivation if it occurred before care was needed. This is incorrect. A disposal is only deprivation if it was deliberate and made with the intention of avoiding care fees. Another error is reversing the burden of proof. The responsibility lies with the authority to prove deprivation, not with you to prove that you did not intend to avoid care costs. Some councils place the burden on the person who disposed of the assets to demonstrate innocent intent, which is legally wrong.

A third common failing is inadequate investigation. If an authority suspects deprivation, it must gather evidence: the dates of the disposal, the circumstances, communications showing intent, the person's health and foresight at the time, and the reason given for the transfer. Simply asserting that deprivation occurred without investigating these matters is not sufficient. We have seen cases where councils make deprivation findings based entirely on the timing of a disposal without considering whether the person could have reasonably foreseen the need for care.

How to challenge a deprivation finding

If a local authority has made a deprivation of assets finding, you should take action immediately. First, request a copy of the written decision and the financial assessment in full. You are entitled to this under the Care Act. Second, carefully examine the grounds on which the authority relied. Did they identify the specific disposal? Did they set out when it occurred and to whom? Most importantly, did they explain the evidence supporting their conclusion that you intended to avoid care fees?

Third, gather your own evidence. If the disposal was made for a different reason, collect contemporaneous documentation showing that. Communications, bank records, solicitor's letters, medical records showing your health at the time, and witness statements can all be powerful evidence. Fourth, write formally to the authority setting out why the deprivation finding is wrong. Reference the Care Act and the regulations. Explain why you did not have the intention they allege. If they do not respond satisfactorily, escalate the complaint to the Local Government and Social Care Ombudsman. The Ombudsman can investigate complaints about maladministration and has found in favour of complainants in many deprivation cases where councils have failed to apply the law correctly.

If you wish to pursue the matter further, judicial review is available as a last resort, although it is expensive and should only be considered if the Ombudsman is unsuccessful and the sums at stake justify it.

Notional capital and its practical impact

It is important to understand what happens if an authority does succeed in making a deprivation finding. It does not mean that the money is clawed back or recovered. Instead, the authority treats you as though you still possess that capital. This is known as treating you as having "notional capital". In practice, this means that your assessed contribution towards care costs will be calculated as if the money had not been disposed of. Over time, if your actual capital is spent down, the notional capital will eventually cease to have an effect because you will reach the point where your real assets would be expected to be depleted anyway.

Get specialist advice

Deprivation of assets allegations are serious. They can result in significant financial liability if the local authority's assessment is allowed to stand unchallenged. The law in this area is detailed and the burden of proof is on the authority, not on you. If you are facing such an allegation, it is essential to obtain specialist legal advice quickly. Early intervention can make the difference between a correct outcome and years of paying more towards your care than you should.