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A landmark legal ruling by law lords could change the way services for older people are funded.

The House of Lords ruled that Fife council was not entitled to take into account the value of the family home of Mary Robertson, who transferred the property to her adult sons three years before she was admitted to residential care in Fife. The case reflects similar issues in every council in Britain and is set to have implications throughout the country.

The law lords’ decision, which overturns an earlier decision by the court of session, could mean that older people are free to transfer property, capital and investments to relatives without fearing that the council would later bill those relatives for a contribution to their care. If applied nationwide the judgement will reduce substantially the current income level to local authorities in funding residential services to older people.

Anne McGovern, deputy leader of Fife Council, said that the judgement could have far-reaching implications, and ultimately reduce the amount of services local authorities could provide to older people.

McGovern added: "We now have to consider this very complex judgement in detail, along with other councils and the Scottish executive, before deciding what further course of action to take."

A spokesperson for the executive said: "We are now considering the consequences of this complex judgement carefully, and will be issuing guidance once we have had the opportunity to do so."

An emergency meeting is to be convened this week involving Cosla and the executive.