Home Protection Plans – What protection do they offer?

7th January 2020 Wills, Trusts & Estate Planning

Prior to the enactment of the Finance Act 2019, provisions within the Inheritance Act 1984 allowed homeowners to protect their residential homes from care fees, whilst still benefitting from the Residence Nil Rate Band (RNRB) introduced in April 2017.

Homeowners were previously able to protect their property through a Home Protection Plan (HPP), which allowed the family home to be passed into a trust. The owners would become beneficiaries of the trust and with a guaranteed right to continue to live there for the rest of their lives, or as long as they want to do so. One of the purposes of a HPP is to keep the family home outside of the individual’s estate, therefore protecting the value of it from the local council when it comes to collecting care home fees.

For 18 months, between April 2017 and October 2018, it was also possible under the legislation for individuals to place their family home in to a HPP, and upon death benefit from the RNRB allowance. At the time, this allowance would have been between £100,000-£125,000 per person who had an estate worth less than £2,000,000, provided the home was being passed (via the HPP) to a direct descendant.

Section 66 of the Finance Act 2019 however has amended section 8J of the Inheritance Act 1984 to the extent that homes placed in a HPP, which under the legislation would be considered a gift with a reservation of benefit and thus continue to form part of the deceased’s estate, will no longer have the RNRB available to them. As a result, this change will apply to any deaths after 28 October 2018.

The new legislation begs the question, how much financial protection does that HPP now offer, and would individuals be better off allowing their estates to benefit from the RNRB even if that does mean their homes could be vulnerable to care fees?

It is worth noting that in April 2021, the government intend to increase the RNRB to £175,000 per person. Depending on the size of their respective estates, this allowance can be transferrable between spouses and civil partners, which could result in an ultimate allowance of £350,000, completely free of Inheritance Tax. It is also important to consider that the family home will be disregarded by the local authority in relation to care home fees if it is still occupied by a spouse or partner. 

Whilst a HPP provides security in an era where care home fees are rising rapidly, the lack of availability of the RNRB could have serious inheritance tax consequences on higher value estates.

If you have entered into a HPP or require any tax planning advice regarding your residential property and care home fees, for a free consultation, please do not hesitate to contact us.

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Alex Streeter is a Trainee Solicitor located in Manchesterin our Trainee Solicitors department

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