We explain how a refund from overpaid care fees can be meaningful. With average places at £5,064 per month and nursing costs around £6,116, small mistakes can lead to large overpayments and significant refunds.
We set expectations early. A trust can help in the right situation, but it is not a guaranteed fix. It must be set up properly and explained clearly.
Readers must grasp the difference between safeguarding a refund that already exists and seeking to cut future fees. We outline the key moving parts: local authority assessments, the means test, what counts as assets, and rules on deprivation of assets.
We place trusts within wider estate planning and warn against one-size-fits-all guidance from unregulated providers. For practical next steps and further information, see our our guidance.
Key Takeaways
- Overpayments can be large; refunds may follow.
- A properly set up trust can help, but it is not guaranteed.
- Protecting an existing refund differs from reducing future fees.
- Understand assessments, means tests and deprivation rules.
- Seek tailored planning and regulated advice for loved ones.
Why care home fee refunds matter and how funding works in the UK
Small errors in means testing can mean thousands paid unnecessarily over time. We explain the numbers and the rules so families can act with confidence.
Typical bills are high. The average monthly care cost is £5,064 (£65,832 per year). Nursing places average £6,116 per month (£79,508 per year). These sums add up fast and can drain savings in a few years.
How the local authority means test works
Local authority assessments check capital and income to decide help. The key tipping point is the £23,250 capital threshold. Above that, most people pay privately. Below it, council support may apply subject to a full assessment.
What counts as capital and income
Capital usually includes savings, investments and property that can be sold or valued. Income covers pensions, benefits and regular payments.
- Capital: savings, shares, property value.
- Income: pensions, state benefits, regular payments.
Example: someone with cash of £30,000 will generally fund bills privately. Someone with £10,000 may qualify for support after assessment.
| Type | Monthly | Yearly |
|---|---|---|
| Residential average | £5,064 | £65,832 |
| Nursing average | £6,116 | £79,508 |
| Capital threshold | £23,250 (eligibility tipping point) | |
For practical guidance on planning around these figures, see our claim guidance.
Trusts explained for care fees and estate planning
A trust is a legal container that helps households plan who gets what, and when. It holds property and finances under rules set by the person who creates it. This brings order to later distribution and can guard inheritance for children and other family members.
Key roles matter:
- Settlor: the person who sets the terms and places assets into the arrangement.
- Trustees: those who manage the assets and follow the rules.
- Beneficiaries: the people who may receive sums or property.
Common forms seen in UK planning are Discretionary, Bare and Life Interest variants. Discretionary arrangements give trustees choice over payments. Bare arrangements name beneficiaries who can demand assets. Life Interest models let someone benefit during life, with capital passing later.
Lifetime property trusts are set during your life and differ from Will-based Life Interest trusts. One takes effect now; the other only after death. That timing affects control, tax outcomes and how easily the set trust can be changed.
For practical examples and drafting guidance, see our notes on creating will trusts and the steps for putting a house in a trust.
using a trust to protect care home fee refunds uk: when it can help and when it won’t
Local authority checks often look beyond what is on your current balance sheet. Councils may ask about past ownership and transfers. That scrutiny is where many families are surprised.
How local authorities assess current and past assets
Local authorities review present assets and past disposals. They can ask if property was ever held, gifted or moved into an arrangement. If transfers appear aimed at avoiding paying care fees, the council may treat the original owner as still holding the asset.
Why “putting the house in trust” is not a guaranteed solution
Simply moving property into a vehicle for later benefit does not make it invisible. If the council concludes the purpose was to avoid paying fees, that step can be challenged. Plans must be clear, genuine and professionally documented.
The deprivation of assets risk and the look‑back reality
Deprivation of assets means the authority may assess you as if the asset still exists. There is no fixed look‑back period; timing and intent matter. The inheritance tax seven‑year rule is separate and does not give safety for fee assessments.
Practical myths and one realistic example
- Myth: transfers older than seven years are automatically safe — false for local authority checks.
- Myth: any transfer removes liability — councils may reclassify the asset.
- Example: if foreseeable care needs existed when property was moved, the transfer may be treated as deprivation.
Get sensible legal advice before arranging any transfer. Reversing a poorly drafted arrangement can be costly and sometimes impossible. For further guidance, see our practical guidance.
How to set up a trust for care-related refunds and asset protection
Begin with a clear aim: are you securing an existing repayment, preserving property, or arranging long-term inheritance?
Clarify your objective
Be honest about the goal. Safeguarding an already-paid sum differs from trying to lower future bills.
That decision shapes structure, trustees and paperwork.
Choose the right structure
Match the arrangement to family needs and estate planning aims.
Discretionary gives flexibility. Bare names recipients. Life interest lets someone benefit now, with capital passing later.
Appoint trustees and document wishes
Pick trustees who are reliable, available and able to make joint decisions about property and income.
Write a clear letter of wishes so loved ones understand the spirit behind decisions.
Plan practicalities and ongoing management
Decide what happens if property needs selling. Some arrangements let a property be sold and proceeds reinvested in another property owned by the arrangement, subject to the terms and trustee agreement.
Keep records, run trustee meetings, and hold separate bank records. Good admin makes later disputes unlikely.
Register with HMRC promptly
Trustees must register with the Trust Registration Service within 90 days of creation. Missed registration can trigger HMRC penalties.
“Trust arrangements are complex, must be carefully prepared and are not easily undone.”
| Step | What it means | Who acts |
|---|---|---|
| Set objective | Decide between refund, property retention, estate aims | Settlor with advisers |
| Choose structure | Select Discretionary, Bare or Life Interest | Legal adviser and settlor |
| Appoint trustees | Name reliable managers and draft letter of wishes | Settlor and solicitor |
| Register TRS | Register within 90 days or risk penalties | Trustees |
We recommend regulated legal advice. Cheap set-ups can leave families exposed to tax problems or local authority challenges. Good planning protects assets and gives peace of mind for the future.
Tax and legal consequences to weigh up before transferring assets into trust
Before transferring property, understand the immediate tax hits and long-term charges. We set out the likely pitfalls plainly so families can weigh options.
Immediate entry charge
If the value placed into an arrangement exceeds the £325,000 Nil Rate Band, an immediate inheritance tax charge of 20% applies on the excess. That headline number explains why transfers can cost now, not later.
Ten-year and exit charges
Every ten years trustees face a reassessment. The charge can reach up to 6% on value above the Nil Rate Band.
Leaving the arrangement can trigger an exit charge as well. These ongoing taxes create friction in long-term estate plans.
Living in the property and GROB rules
Gift with Reservation of Benefit rules mean that if you still live in the property as before, HMRC may treat it as part of your estate. That defeats the intended tax removal.
Effects on Residence Nil Rate Band
Placing a main residence into an arrangement can affect entitlement to the Residence Nil Rate Band for children or direct descendants. This can reduce the inheritance amount passed tax-free.
“Check tax consequences before any transfer. Small oversights can change lifetime and inheritance outcomes.”
| Charge | When applied | Typical rate |
|---|---|---|
| Entry charge | On transfer if value over NRB | 20% on excess over £325,000 |
| Ten‑year anniversary | Every tenth year after creation | Up to 6% on excess |
| Exit charge | When assets leave arrangement | Pro‑rata percentage (varies) |
These rules stack. We recommend seeking tailored legal advice and reviewing our Nil Rate Band guidance before signing anything.
Alternatives to trusts for reducing care fee pressure and protecting loved ones
Small, practical steps often ease paying care costs more than dramatic rearrangements. We recommend starting with wills and clear directives before moving further.
Will-based planning can include Life Interest models, sometimes sold as “Protective Property Trusts”. These let a surviving spouse benefit during life while preserving inheritance for children.
Lasting Powers of Attorney are essential. An LPA lets trusted people handle finances and deal with the local authority if capacity changes. That helps ensure bills and income are managed promptly.
Financial planning and legitimate expenditure
Options include annuities that create steady income for paying care fees. Repaying genuine debts or sensible spending may reduce capital, but councils can review transactions for deprivation.
- Start simple: update wills and set LPAs.
- Then review: consider annuities or further estate planning only if needed.
- Example: update documents, check income and capital, then seek tailored advice.
“Begin with clear paperwork and sensible financial planning — often that gives most families the best outcome.”
Conclusion
Decisions about assets often hinge on timing, intent and honest records.
Arrangements can help long-term planning, but they do not guarantee protection against care and council assessments. Local authority checks focus on present holdings and past disposals. Where transfers look deliberate, deprivation assets may be reclassified.
The trade-off is clear: potential control and inheritance benefits sit alongside tax costs, administrative burden and the risk of challenge. Consider alternative steps such as wills, Life Interest models and Lasting Powers of Attorney.
Gather key facts — income, capital, current care situation — then seek regulated, professional advice. We can help you prepare informed questions for your solicitor and move forward with confidence.