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A lot of people in the UK are responsible for paying their full care home costs.
You have to pay for your own care costs if the valuation of your personal assets (property, money, possessions, etc) exceeds the national threshold.
What is the national threshold?
The threshold is different for people in England and Northern Ireland than it is for those in Wales or Scotland.
The thresholds are (these include the value of your property):
▪ England and Northern Ireland = £23,250
▪ Wales = £50,000
▪ Scotland = £28,750
If the total value of your assets is over the threshold, you will be classed as a ‘self-funder'. This means you will be expected to pay for your care fees in full from your own income, savings, or property value.
So, if your assets are worth over the threshold amount where you live, you will be a self-funder.
If you are classed as a self-funder, you may be able to get some help towards paying for your care home fees, such as:
▪ Attendance Allowance
▪ Personal Independence Payment
▪ Carer’s allowance (if you have a Carer)
If you’re unsure, we highly recommend speaking to a financial advisor who will be able to give you personalised advice on this.
What is the average cost of care?
There are different kinds of care to suit various needs. These include:
▪ Home care
▪ Sheltered accommodation
▪ Care homes
▪ Nursing homes (like care homes, nursing homes provide 24-hour assistance, but each resident’s care is supervised by a registered nurse)
Costs vary considerably depending on the type you choose, but care in your own home costs an average of £15-£20 per hour. Residential care ranges from £27,000 and £39,000 per year, or around £35,000 and £55,000 per year if you need specialist care. These costs can, of course, vary, depending on where you live.
The cost of your care is determined in a care needs assessment, where the local council sends a specialist to your house to carry out an assessment to see which type of care is best for you.
After your care needs assessment, the local authority will carry out a financial means test which will determine how much you must contribute to your care fees.
What is a care needs assessment?
This is when a care specialist from your local Council visits you to find out your individual care needs and the best way to help you.
They may advise on having support at home, and may suggest adapting your home to help you, such as a walk-in shower, bed sensor or stair-lift, for example.
They may also suggest having personal help from a care worker (to help you dress/wash/take medication), meals on wheels, or they will suggest either residential accommodation or a nursing home.
What will happen to my property if I go into care?
If you ever needed to go into residential care permanently, you would have to sell your property to pay for the costs, unless it is occupied by a member of your family (including former partners, unless they are estranged from you).
Your property will be assessed on its market value, minus any loans (or mortgages) on it, and minus 10% for selling expenses.
If you need care in your own home, you have to pay the full care fees if your capital is over the national threshold. If you are under the threshold, your local authority will have to contribute towards the cost and will take into account your ‘eligible income’; which is any money that doesn’t come from disability benefits and pensions.
How can I protect my property against care fees?
It is better to plan in advance to prevent your property being sold to pay for your care home fees in the future, which could leave your children or family with little to no inheritance.
You do have a few options to protect your property from care fees, such as:
Exploring payment options
There are some payment options available to help prevent your property being sold for care home fees, including:
▪ Care Annuity: An insurance policy to pay for long-term care.
▪ Deferred payment schemes: Local authorities offer these schemes as a flexible way to pay for long-term care.
▪ Equity release: Releasing equity in your home to pay for care fees. There are significant risks in doing so, so you should always seek professional independent financial advice first.
▪ Rental income: You could consider renting out your property if it could generate enough income to pay for your residential care, rather than selling it. The property income would need to cover the significant costs per year.
▪ Make a financial gift to your children to avoid care home fees
Many people will be tempted to simply gift their money/property to their children, to avoid care fees. However, you need to be very careful as this gift could be classed as a Deliberate Deprivation of Assets. This is when a local authority decides that you have deliberately reduced your capital to avoid care home fees.
They could argue this if you have:
▪ Gifted away assets
▪ Spent large amounts of money prior to your care needs assessment
▪ Sold an asset for less than it is worth
If your local authority believes you have deliberately reduced your assets to avoid paying for care, they will take action to recover the costs. This can put both yourself and your children in a terrible financial position.
You can give your children large financial gifts, as long as it is clear that you are not doing so to avoid care fees. There are no particular limits to this, but would depend on your age, health and the prospect of you needing care in the near future at the time of the gift.
Many people believe that if you transfer your assets and survive for 7 years, this is not a deliberate deprivation of assets (known as the ‘7 year rule’). However, this is a myth; the local authority can go as far back as they like when considering whether or not a gift is a Deliberate Deprivation of Assets.
There is a 7-year rule for inheritance tax gifts, but this does not apply here.
Set up an asset protection trust
Setting up an asset protection trust is the best way to protect your estate from being used for care home fees and to preserve your loved ones' inheritance.
The asset protection trust options are:
▪ Protective Property Trust
▪ Life Interest Trust
▪ Interest in Possession Trust
Protective Property Trust (PPT)
If you own a property in joint names, depending on the type of joint ownership (See our guide Property Protective Trusts for further information on this), you may be able to ring-fence (thereby avoiding care home fees on that share) a share of the property after the first partner’s death for your children.
The value of half the property is protected by the trust when one partner dies. This means that the surviving partner keeps their half of the property, whilst the other half is held in trust and therefore NOT liable for care home fees. This is because the share of the property that is in trust never passes into the survivor’s estate from which fees can be paid, yet they can still use the property as if it is owned.
For example, if a house is worth £200,000 when the first partner dies, only £100,000 would be considered for care home fees and the other £100,000 would be ring-fenced for your children or loved ones to receive as inheritance.
A Protective Property Trust also means that the surviving partner can still benefit from the deceased partner’s share of the property while they are still alive. When they die, the share then passes on to the Will beneficiary (or beneficiaries).
The surviving partner can remain living in the property until they pass away, and their life effectively is unchanged. They can sell the house if they wish to and can invest in a new property.
You must have legitimate reasons for setting up the Trust, however, and not simply trying to avoid care home fees. It is therefore important that you speak to a legal specialist to ensure the trust is set up correctly.
Life Interest Trust
This type of trust is similar to a Protective Property Trust as one half of the property is ring-fenced after the first partner’s death so that it will be protected from care fees.
The difference with a Life Interest Trust is that the surviving partner has the right to live in the property, and can also receive an income from the trust (e.g. by renting the property out).
The property in trust is protected for the beneficiary/ies of your Will, and then it will be passed on to them on the death of the second partner.
See our Property Protective Trusts guide for further information on the types of Trust and how they work.
Interest in Possession Trusts
These trusts are similar to Life Interest Trusts, but the beneficiary can receive income from the moment it is produced.
What can I do?
Whilst you cannot avoid paying care fees, by seeking professional help in advance, you can take steps to protect your assets, particularly your family home.