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A landmark legal ruling by law lords on the issue of older people's assets could have major implications for social services in Scotland, as well as some fallout for English authorities.

The House of Lords judgement ruled that Fife Council was wrong to refuse to arrange residential care for local woman Mary Robertson because Fife suspected she had transferred her house to her children to avoid being liable for charges.

The decision, which overturns an earlier ruling by the Court of Session, stated: "The assessment of need... comes first. The assessment of means... comes afterwards."

The judges ruled that Fife was wrong to take the woman's capital, including the notional capital from her transferred property, into account when they were assessing her needs.

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

Ronnie McColl, social services spokesperson for the Convention of Scottish Local Authorities, said: "Make no mistake, this could prove extremely problematic and cost councils a great deal of money."

Human rights solicitor Bernadette Livesey added: "This ruling destabilises the whole system not just in Scotland but it also raises major questions in England, which has broadly the same charging regime. The problem is that the judgement skates over the thorny issue of notional capital."