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Deferred Payment Schemes

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If you or your parent or relative needs permanent long term care in a care home and you are assessed for having to pay for your own care, but most of your capital is tied up in your former home, instead of having to necessarily sell it, you could apply for a Deferred Payments Scheme providing:-

  • a) You have been formally assessed as needing full time permanent residential or nursing care in a care home.
  • b) Your property can provide adequate security for any such loan.
  • b) Crucially your non-property capital is currently less than £23,250 (England), £24,000 if you live in Wales, or £16,250 (Scotland) all rates applicable as at 2016/17

So if your other assets are significantly more, this scheme will not be available (at least until they do fall below any future thresholds) and therefore you will need to look at alternative means of paying for care

Please note this scheme only applies to your main principal residence. If you have other investment property or a holiday home, these will not qualify.

So what is a Deferred Payments Scheme?

Well it is like an IOU where instead of being forced into selling your home immediately, you can keep it (possibly to rent out to help meet care fees) and you can ask your local authority to pay the care fees for you instead until you eventually decide to sell your home or you die. As such they can be used either as a type of bridging finance until you manage to sell the property or as a longer term strategy to delay or even avoid having to sell any home during the person’s lifetime.

These schemes should be offered to anyone who they deem needs to be a self-funder providing their other assessable capital is below the respective threshold and has still not sold their principal private home in the 12 week property disregard period. However, you have to apply and the Local Authority retains the right not to offer it but if they don’t, they do have to tell you why in writing.

Deferred Payment Schemes – How do they work?

Deferred Payments scheme are not automatically granted, you have to apply to your Local Authority.

If granted your Local Authority undertakes to pay your care fees for you to the care home (until you sell your home or die) when they will recover the debt from the sale proceeds.

They secure this ongoing debt by placing a legal charge on the property so it can’t be sold without your solicitor repaying any debt from the sale proceeds.

In the meantime, to avoid potentially very large bills your Local Authority will expect you to pay them all of your income bar a Personal Expenses Allowance (currently £24.90 p.w. in England, £ 26.50 p.w. if you live in Wales and £25.80 p.w. if you need care and live in Scotland – all rates applicable 2016/17). Should you want to rent out any former home and your local authority agrees to it, they will also expect to receive any rental income. Whilst this means you will not immediately benefit from any such rental income, any money paid to the Local Authority reduces the debt created which in turn means you need to repay less.

There is no definite time limit to such schemes but the Local Authority will occasionally write to you and ask your intentions regarding selling the property and they will not allow any debt to exceed a certain % of the property’s value (normally around 80%). They will, therefore ascertain any property’s value at outset and depending on how long any scheme runs for along with changes in property value, will possibly seek fresh revaluations from time to time.

Costs and Obligations of Deferred Payments Schemes

For setting up a Deferred Payments Scheme you will need to pay for the legal and administrative costs involved in creating a legal charge on your property, plus initial and period valuation fees.

You will also be obliged to keep any property fully insured (which can be expensive and difficult to obtain if it is to remain unoccupied) and maintained including routine work like cutting any grass etc. For this reason you may decide that it is still easier just to sell the property, but in this case any value realised would be counted in any means test see State Funding.

Universal Deferred Payments Scheme (England)

As part of Care Act 2014 reform of Long Term Care funding in England, this deferred payments scheme has been improved, and is now referred to as the Universal Deferred Payments Scheme. So if your property is located in England and wish to apply for such a scheme any new application is made for the new Universal Deferred Payments Scheme.

This is similar to the old scheme but is designed to be accessible to more people as although the non- property capital threshold remains the same as the old scheme £23,250 (2016/17). However there are some fundamental differences including:-

The fact that unlike the former scheme, Local Authorities will be able to apply interest at a nationally set (but variable rate) on any debt built up from day 1 under the Universal scheme. The set rate will be re-assessed every 6 months and is compounded until the day the debt is finally repaid. (Old schemes only have interest applied if it is not repaid after 56 days after death or any property is sold). Any existing old schemes can continue interest free for as long as required. Local Authorities are not allowed to start applying interest to them just because the rules allow them to apply it to new schemes from April 2015.

You will be allowed to retain more money (up to a maximum of £144 per week – 2016/17) to help the meet the costs of insuring and maintaining the property – the so called Disposable Income Allowance and your Local Authority will have the discretion to allow you to keep a certain % of any NET rental income (after payment of letting agency fees) to help meet the costs of maintaining/repairing the property. However the more money you chose to retain the more debt plus interest is accumulated.

Universal Deferred Payments Scheme (England)

As part of Care Act 2014 reform of Long Term Care funding in England, this deferred payments scheme have been improved, and is now in England its referred to as the Universal Deferred Payments Scheme.

This is similar to the old scheme but is designed to be accessible to more people as although the non- property capital threshold remains the same as the old scheme during 2015/16 (£23,250), from April 2016 the threshold will rise to an expected £118,000.

However there are some fundamental differences including:-

  • Just like a credit card Local Authorities in England will now be able to charge interest at a nationally set (but variable rate), on any debt built up from day 1 under this new Universal scheme. (Old schemes only have interest applied if it is not repaid after 56 days after death or any property is sold).

  • You will be allowed to retain more money (up to a maximum of £144 per week - 2015) to help the meet the costs of insuring and maintaining the property – the so called Disposable Income Allowance.

  • Your Local Authority will have the discretion to allow you to keep a certain % of any NET rental income (after payment of letting agency fees) to help meet the costs of maintaining/repairing the property.
   

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Advice on Care is a trading style of Keith Hargraves who is an appointed representative of Intrinsic Financial Planning Limited and Intrinsic Mortgage Planning Limited, which are authorised and regulated by the Financial Conduct Authority. Intrinsic Financial Planning Limited and Intrinsic Mortgage Planning Limited are entered on the FCA register (http://www.fca.org.uk/register/) under reference 440703 and 440718.

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