Section 21 HASSASSA Act 1993

Philip Laidlow provides an analysis of this crucial section of HASSASSA

Rather than look at actual planning techniques, this edition's article looks at one of the key enforcement and avoidance provisions available to LAs. This is s21 HASSASSAA which enables LAs to recover the cost of care from third parties in certain circumstances. Good legal advice can blunt or nullify the potential impact of s21. Equally, it is one that is likely to be more widely used in the future as increased budgetary pressure combines with greater awareness of the scope of s21. It is a swingeing and potentially valuable remedy for LAs, and as it focuses on the children or other recipients rather than the elderly person - and hence avoids the negative publicity that goes with such as the use of the bankruptcy remedies - it is surprising that it is not already more vigorously used by LAs.

In short, if someone gives away assets in the six months before entry into care, or while in care, s21 permits the LA to seek any shortfall of the assessed contribution not recovered from the resident, from the recipient.

Time Limits

Central to s21is that there can only be recovery from a third party if the transfer takes place while the old person is in care, or in the six months before entry into care. It is not quite as simple as that though. S21(1)(a) actually uses the phrase "a person avails himself of Part III accommodation". S21(1)(b)(i) talks of a time limit "not more than six months before the date on which he begins to reside in such accommodation". In working out whether a transfer is caught as being within that six month period, it is relevant to know whether or not the old person avails himself of Part III accommodation. A transfer in the six months before entering non-part III accommodation is not necessarily going to be caught.

Sub-section (8) defines "Part III accommodation" as accommodation provided under sections 21 to 26 of the National Assistance Act 1948. The old distinction between local authority and private homes becomes irrelevant. It is a question of whether the old person is in the home within the LA system. To be outside the LA system, and consequently outside Part III, the old person needs to be completely private paying i.e. not even having been needs tested. For an old person who has left it too late, who wishes to make a transfer which would otherwise be caught by s21, and who is prepared to run the risks of provocative action, then a gift followed by six months in care on a completely private paying basis before even a needs assessment, is a planning technique which is consistent with the language of s21.

Sub-section (3) blocks a more obvious avoidance technique. It is not possible to go into Part III accommodation so that the relevant six months is established and exhausted, then temporarily leave the accommodation to make a gift while not in such accommodation. The sub-section prevents this by providing that such re-entry introduces a fresh six month period.

Although there is a strict six month time limit in establishing transfers in respect of which LAs can look to third parties, once that ability has crystallised in favour of a LA there is no time limit during which the LA must subsequently exercise its rights. In theory at least it is open to the local authority indefinitely to look to the third party, subject only to the usual law of limitations. The LA's right is a personal right against the third party rather than a right to follow the asset received. Hence the subsequent disposal of the asset, or an inability to trace its proceeds, has no impact on the availability of the remedy.

Interaction with Regulation 25

Regulation 25 of the National Assistance (Assessment of Resources) Regulations 1992 is the regulation which permits LAs in the circumstances of deliberate deprivation to treat the old person as having notional capital. The flavour of the language of s21 is such that before using the section the LA must have gone down the deprivation route. This implication in particular comes from the wording towards the end of sub-section (1). A third party can be liable for "the difference between the amount assessed as due to be paid for the accommodation by the person availing himself of it and the amount which the local authority receive from him for it". The italicised wording suggests that the LA needs to have applied the deprivation provisions to arrive at an assessment which takes account of the notional capital/deprived asset. The LA does not seem to need to go any further and in particular does not seem to need to take any steps towards collection from the old person. The CRAG guidelines at annex D seem to support this interpretation: see paragraph 2.2 confining s21 to assets which would have been assessed.

S21 can only apply if the transfer was "knowingly and with the intention of avoiding charges for the accommodation". "Knowingly" will include wilful disregard as much as actual knowledge. The intention will be subjective. The likelihood is that these requirements will not in practice be of great importance. Transfer while in care or in the previous six months must carry a strong presumption of the requirements being met. Although the wording of regulation 25 is different, if there is sufficient intention for the deprivation provisions to apply then certainly the requirements of s21 are also going to be met.

Assets Covered

Sub-section (2) states that the section applies to "cash and any other asset which falls to be taken into account for the purpose of assessing under s22......" The section clearly applies to real property as well as shares, saving certificates and other forms of personal property, and in fact the only limitation will be that it does not apply, as indicated above, to property which would have the benefit of disregarded status under schedule 4 to the 1992 regulations.

Third Party

The third party is simply spoken of as "person or persons". There is no limitation to individuals, nor any restriction to a person receiving the asset as a beneficial transferee. The section will apply as much to trustees and corporate recipients as to individuals. An important limitation is that the section applies only against the original transferee(s). If the transfer can somehow be structured so that the recipient of the substantive bounty is not the actual transferee then on the face of the section there will be no right of recovery for the LA eg if A gives a house worth £50,000 to B on condition that B makes a cash gift of £50,000 to C, then B receives no overall benefit and so has no liability and C, who actually benefits, is not the transferee and hence also has no liability.

One cynical approach to s21 is to ensure that the transferees are trustees, and even trustees with minor or unborn beneficiaries. A LA can then be resisted on the footing that that is the trustees' fiduciary duty, and that a s21 payment could only be made by the trustees with the sanction of the court. As the trustees are unlikely to have a personal costs risk the hope will be that the LA simply will not bother to try to use s21. An astute LA though might take a similar view; though that the section 21 remedy is worth pursuing as even its costs should be out of the trust fund.


Section 17 only applies to transfers at an under-value. The section is careful at sub-section 1(c) to focus on measurable consideration. It applies if either there is no consideration (i.e. there is a gift) or the consideration for the transfer is less than the value of the asset i.e. any arguments founded on the historical concept of natural love and affection in certain circumstances amounting to good consideration do not get off the ground.

Liability and Valuation

A transferee's liability under s21 is limited to the "benefit accruing to him from the transfer": sub-section (5). This is a curious way for the statute to put it. "Benefit" is rather a woolly word in the context of a section imposing financial liability. Given that the next two sub-sections are concerned with measuring value, one has to presume that what sub-section (5) comes down to is that the maximum liability is the net value of the asset received in the hands of the transferee. The latter wording is important and flows from the wording "accruing to him" and reflects the reality that value in the hands of the recipient is not always the same as value in the hands of the transferor. A section imposing a financial liability on the basis of receipt of an asset necessarily needs to be limited to actual realisable value in the market. Sub-section (6) defines values in terms of what would be realised in the open market by a willing seller at the time of the transfer. The open market in other contexts (mainly tax) would always pre-suppose a willing buyer as well as a willing seller. There is not one here, and reference to Palfrey (see ECA Volume 1 Issue 3) seems to confirm that one should not be imported, and certainly if the section makes specific reference only to a willing seller then there is no reason to do so. There, in fact, is good reason in principle not to do so. A willing buyer is imported into the tax open market because it is sought to measure (and tax) the economic value of an asset to someone i.e. its utility freed from artificial restrictions on transfer. In contrast s21 is concerned with retrieval and, as indicated, needs to be limited accordingly. It does not specifically say so anywhere in s21, but sub-section(5) limiting liability to the value received, does so at the date of the transfer. If the value of an asset rises between the date of the remedy and the date of the LA's exercise of its s21 remedy, the LA is limited to the former. The growth is beyond the LA. The opposite is the case if value falls.

Value as received rather than value as given opens up all sorts of avoidance techniques through fragmentation and/or transfers of assets which have reduced value on receipt, or even little or nominal value. The obvious one is a share of a house. It is clear from Palfrey that for present purposes a half share of a property has a nominal value at best. There is no market and no relevant willing purchaser for a half share of a house. Care should be taken to distinguish gifts of part from joint gifts. There is a pro-rating of liability among joint recipients. However, a joint gift is just that. If A gives his house jointly to B and C then there is one joint gift, calculation of the maximum liability by reference to the whole of the house, and a pro-rating subsequent to that. Where valuation can be affected then joint gifts should take effect separately as split gifts.

Philip Laidlow, Associate Solicitor - Eversheds

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