The UK has an ageing population, which means that a significant number of people require care as they get older. This can range from daily help with household tasks to 24-hour nursing care.
There is some provision to help pay for this, but if you have income, property, or savings, you will be expected to cover some (or all) of the cost yourself. This means that it is not just the affordability of care that is an issue, but also the possibility of eroding the assets that you have built up during your lifetime.
In this guide, we explain how care funding works and offer some suggestions for planning your finances.
The Cost of Long-Term Care
The cost of care will depend on:
- The level of support required.
- Whether care is provided at home or in a residential setting.
- Where you are in the UK.
- How long care is required for.
As you can’t necessarily predict your future health or life expectancy, it’s very difficult to accurately plan for these costs.
According to Age UK, a care home place typically costs around £800 per week, while a nursing home stay costs, on average, £1,078 per week. Individual homes may cost more or less than this, with significant regional variation.
Care at home may offer another solution for people with lower to moderate support needs. The cost of this is generally around £15 per hour. This means that 8 hours of care per day will cost approximately £840 per week. However, household bills and living costs will be payable on top of this, while care home fees are generally all inclusive.
The average stay in a care home is 30 months, although, of course, this can vary. A reasonable planning assumption would be 3 years of care at £1,000 per week, which takes the total estimated cost to £156,000. You might want to assume more or less than this as a starting point.
What Help is Available?
The amount that you need to pay for care is subject to means testing.
If you have an income, for example, from a pension, you will be expected to contribute to the cost of your care. If you are not taking an income from your pension, the local authority will make assumptions about the notional amount available from your pot and build this in.
Any deduction from your income should leave you with a personal expense allowance of no less than £25.65 per week. Certain disability benefits are excluded from the assessment. It’s important to make sure you are receiving all benefits you are entitled to as the local authority will assume this in the means test.
In terms of assets, if you have over £23,250 in property, savings, or investments, you will need to cover the costs of care yourself. This may require the sale of your home if you are moving into residential care. This will not apply if your stay is likely to be temporary or if you live in the property with someone else (unless they are an adult under the age of 60 who is not your partner and is not disabled). The value of your home is disregarded for the first 12 weeks and you could receive additional help if your other assets are valued under £23,250.
It may also be possible to arrange a deferred payment agreement with the local authority. This means that you don’t need to sell your home, but the council will recoup any costs from your estate when you die.
If you have between £14,250 and £23,250 in capital, you will need to pay a contribution towards your care costs on a sliding scale. Assets of under £14,250 mean that your capital is not taken into account, although you may still need to make a contribution from income.
Depending on where you live in the UK, the rules could vary slightly or there may be additional support available. It’s worth checking with your local authority directly.
Deliberate Deprivation of Assets
A question that comes up frequently is whether someone can pass the family home (or other assets) on to their children to avoid having it taken into account in the means test.
Unfortunately, the answer is no, as this will be most likely considered as deliberate deprivation of assets. The property will be taken into account in the same way as if you still owned it.
However, if you have an Inheritance Tax (IHT) liability, aiming to reduce the value of your estate through gifting is a legitimate planning tactic. The key is to plan ahead and make your intentions clear long before you are likely to require care.
Planning for Care
It’s a good idea to build in potential care costs to your financial plan. While many of the specialist products for this are no longer on the market, there are still some options available:
- You can pay the costs directly using cash or investments. It’s worth noting that investment bonds are not included in the means test calculation as they include an element of life insurance. However, setting up a bond for this purpose would be considered deliberate deprivation.
- You can use a lump sum to buy an immediate needs annuity, which will provide you with a monthly guaranteed income for life. You can build in options such as inflation protection. No tax is payable if the income is paid directly to a care provider.
- You can invest a lump sum in a loan trust, which can help with care costs and estate planning. The loan element can be repaid to you as required, for example, if you need to pay for care. The growth accumulates outside your estate and is earmarked for your beneficiaries.
- You may want to consider a lifetime mortgage or equity release product. This allows you to use some of the value in your home to pay the costs without the need to sell it. Specialist advice is recommended.
- If your priority is to preserve an inheritance for your family, another option is to set up a whole of life insurance policy in trust. This will likely provide your beneficiaries receive a lump sum regardless of the value of your personal assets.
Please don’t hesitate to contact a member of the team to find out more about long-term care planning.
The value of investments can go down as well as up and you might get back less than you have invested.
The content in this article was correct on 24/08/2023.
You should not rely on this article to make important financial decisions. Teachers Financial Planning offers independent financial advice on savings, pensions, investments, mortgages and mortgages for teachers and non-teachers. Please use the contact form below to arrange an informal chat with an adviser and see how we can help you.