Understanding your choices if you need to pay for a Care Home
Paying for a care home is expensive and can all too quickly consume all of your savings.
Unless you qualify for ongoing NHS Continuing Healthcare, you will be financially means tested to see if you need to pay for your own care.
With the current means testing thresholds being so low - £23,250 England, £28,750 Scotland, or if you live in Wales £24,000 (if need care at home or £50,000 if need care in a care home (2021/2) (and these figures include the value of any home -if you are single, widowed or divorced), it is not surprising that many people find they end up paying for their own care and become what is known as a “self-funder”.
If you do end up paying for care, depending on whether or not you wish to keep or sell any former property, there could be as many as 7 different possible funding strategies for paying for care , including:-
Offered by Local Authorities, this is a type of loan where you can ask your local authorities to pay the care fees for you until you eventually decide to sell and /or find as buyer and as such acts as an IOU.
If granted, the Local Authority ensures they recover any care fees they have paid, by placing a legal charge on your property so it cannot be sold without your solicitor re-paying them the money owed to them from any sale proceeds.
Not only does avoid you having to immediately sell the property it can even allow you to let it in order to generate some extra rental income, to further help meet care fees.
It also means should the duration of care turn out to be short, any debt built up will be quite small.
It does, however, place responsibilities on families/relatives to maintain the property and you will incur some interest until the debt is repaid, although this is quite low.
A Deferred Payment Arrangement is only available if other (non-principal property) assets amount to less than just £23,250 (England) £50,000 (Wales) £18,000 (Scotland) -2021/2 AND you are assessed as needing care in a care home by your Local Authority. It is not available if you simply elect to go into a care home voluntarily.
You can read more about this on our dedicated page Deferred Payments Scheme.
Only an option if care at home is not required, it has the advantage that any income generated can help meet care fees but the income is taxable and when finally sold you could also end up paying Capital Gains Tax. So unless the income generated is sufficient to fully meet any shortfall between income and care fees, you may deem the costs of getting any property ready to rent, plus the ongoing responsibilities of being a landlord and the uncertainty of income, makes this an unsuitable method of paying for care.
Particularly suited to those paying for care in their own homes, equity release schemes allow you to release a sum of money from your home whilst you remain living in it and gives you the option of not paying any monthly interest on the money borrowed. Instead you can allow it to be added to the debt so the debt increases and is only repaid when you (or the last applicant in cases of joint lives) move permanently into a care home or die. However the money released may not be sufficient to continue paying for care for as long as required. The debt plus interest (if not paid) will also inevitably reduce what you leave for beneficiaries.
Please note: If you are single by the time you go into care and have an existing equity release you will not be able to rent out the property to help paying for care. This is because normal equity release schemes need repaying within a certain time period after the sole or last applicant moves into care (typically 12 months).
However, if you haven’t already taken out an equity release scheme before entering a care home, we do have some schemes which would allow you or your appointed Power of Attorney to take one out to pay care fees or to modernise your home to allow it to be let and use the income received towards paying for care.
To find out more about equity release and in particular these specialist equity release schemes, visit equity release page.
Equity Release will reduce the value of your estate and can affect your eligibility for means tested benefits.
Here you simply pay any shortfalls in weekly fees from savings/capital which are either just kept on deposit or invested. This will be the least expensive option of paying for care if the care required is only short term. However it but can erode savings the most and causes uncertainty over whether any chosen care can be maintained for as long as required. Should money run out it can even potentially lead to having to move care homes, which of course is something that should be avoided at all costs. It also means someone will have to continually manage the money to try and get the best returns and preserve it for as long as possible and also pay any care home. Not only this but any income, or interest earned on any money may be taxed.
Similar to paying as you go, but here instead of keeping money safely in deposit type accounts, you arrange for an investment to provide an income to help meet all or some of the care fees.
The main advantage with this is that potential returns may be greater than if money is simply held on deposit. However due to volatility associated with any investing, any portfolio created, would normally be still be heavily weighted in favour of low to medium risk investments to try and reduce the risk of capital falling due to adverse market conditions. Nevertheless any income produced will not be guaranteed and can reduce and certainly will not increase each year (unlike the care fees).
You may, therefore, decide that securing your own or a parent or relative’s care, is more important. If so then investing may not be right or at least should be only considered for any balance of money after first ensuring paying for care has been secured possibly by buying a care fees annuity.
The value of investments and the income they produce can fall as well as rise .You may get back less than you invested.
Care Fee Annuities are very simple but very effective and very tax efficient means of paying for care because they:
Ensure money will never run out and care fees can always be paid.
Give you peace of mind that your chosen care can continue indefinitely.
They do this by paying a guaranteed income (chosen by you) will always be paid for life in return for you paying an insurer just one single premium at outset. What’s more providing the income is paid to a registered care provider the income is tax free.
Care Fee Annuities can be purchased to pay for care at home or in a care home and are portable - so will continue to pay to any new care provider.
The main issue with these types of plans is that should the period of care turn out to be shorter, than the life insurer calculated you will lose some money. This risk, can however be minimised to some extent by electing to pay a little extra to provide for decreasing capital protection. Under such protection the annuity providers will make a refund of any difference between the amount of the premium you selected to protect (25%, 50% or 75%) and the amount they have paid out in fees by the time of death.
If you pay a little extra you can also ensure the income will increase each year to help meet future increases in care fees. To find out just how much an annuity would cost simply complete our online enquiry form and our experts Care Financial will obtain quotes for you. .
An option where the former home is quite valuable and no one will remain living in it, this can help release some money (possibly to buy an annuity).
This option will also avoid possibly having to renovate any former home just to let it.
Alternatively if you don’t mind the hassles and tax implications of being a landlord, any money raised from selling the former home could even be used to buy a cheaper and perhaps more suitable letting property to generate income towards the care fees or to reduce the amount of any annuity required, making an annuity option cheaper to buy.
Obviously such a strategy will face all of the same issues and ongoing responsibilities that simply renting has (see letting out property under "strategies if you want to keep property" which appears above.
Don't lose out on claiming benefits. Minimise the cost of care and ensure it can continue to be received for however long is necessary.
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