Understanding your choices if you need to pay for Residential or Nursing Home Fees.
Apart from if you qualify for ongoing NHS Continuing Healthcare, if you are about to start paying for care, 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, £27,250 Scotland, or if you live in Wales £24,000 if you need domiciliary care or £40,000 for care in a care home (2018/19) (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”.
No one likes having to pay for their own care but here at Advice on Care we aim to make paying for care as easy and affordable as possible relieving you of just one more worry.
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 fees paid, by placing a legal charge on your property so it can’t be sold without your solicitor paying this off from the sale proceed. Not only does this offer you the advantage of not having to seek an immediate sale and even possibly renting out any home to get some rental income, but it also means should the person needing care only require care for a short period the debt built up and required to be repaid, will be quite small. It does, however, place responsibilities on families/relatives to maintain the property and if you live in England, since April 2016 Local Authorities can now apply interest from day 1 It is, however, only available if other (non-principal property) assets amount to less than just £23,250 (England) £40,000 (Wales) £17,000 (Scotland) -2018/19 AND care in a care home has been formally assessed by the Local Authority Social Services. It is not available if you simply chose to go into a care home voluntarily or before Social Services deem it is necessary. To find out more about Deferred Payment scheme visit our dedicated page Universal 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, these 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 if securing your own care, or possibly even more important - a parent or relative’s care, is more important. If so then this is not for you, 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 dedicated tax efficient insurance policies specially designed to pay care fees for however long is required. As such they can offer a very effective way of paying for care - not only ensuring money never runs out and that the chosen care can continue indefinitely but also by helping to protect any remaining money is protected for future inheritances. These care plans are offered by some specialist insurers to provide an indefinite agreed income for the rest of the person needing care’s life. It does this by the insurer converting the single premium you need to pay (at outset only), into a guaranteed income which you can also ask for to increase each year to meet likely care fee increases. As such these specialist care fee plans (or care fees annuity) are a smart way of paying for care as they ensure care can continue indefinitely without any worryies that money will run out, avoids money needing to be continually monitoring or switching, unlike if you “pay as you go” or invest. Not only this but the income these care plans provide is paid tax free, if paid directly to the care provider (either a registered care agency if you are receiving care at home or registered care home).
These care fees plans can be purchased to either pay for care at home or for paying care home fees. They are also portable so it doesn’t matter if you take out one whilst receiving care at home, should you need to move into a care home or move from a residential care home to a nursing home, the annuity moves with you, but may need topping up to meet more expensive care. The main issue with these types of plans are that because the provider calculates how much you need to pay by how long they feel they will need to pay for, based on medical details, should the period of care required turn out to be shorter, you will lose some money. This risk, can however, be minimised if you pay a little extra for some limited 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 and the amount they have paid out in fees by the time of death.
Care fee annuities can be purchased at any time (even if already been receiving care for quite sometime) and can provide an immediate income (in which case they are an immediate care fees annuity) or alternatively you can ask for the income only to start after an agreed period of time (usually after 1, 2 or 3 years )- in which case they are called deferred care fees annuity . The premium for a deferred plan is lower (as the company needs to pay for a shorter period) but you would need the pay the care fees during the initial period. The idea behind these deferred annuities is to provide a cap against ongoing future long term costs of care but they can also limit the overall cost of care should death occur prematurely. This may be achieved by both the premium being lower for a deferred annuity compared to an immediate plan and should death occur earlier than the delayed start to the annuity, the amount you would have paid yourself in fees (during any deferred period) could be less than the difference between the premiums for an immediate needs care fees funding plan and that required for the deferred plan. Please note the premium required on such deferred long term care annuities still need to be paid at outset (not just when benefits start) and capital protection is only available from one provider of such plans, so in the other providers case - you would lose all of the premium if death occurred before the start without ever receiving any benefits.
All premiums on care fee annuities are individually assessed. To get your free no obligation comparison of ALL care fee funding plans, simply complete our online enquiry form.
To find out more these smart ways of paying for care visit care fee annuities. Alternatively to download a copy of our free guide to Care Fee Annuities (or care fee funding plans) complete our online enquiry form.
An option where the former home is quite valuable and no spouse remains living in it, this can help release some money (possibly to buy an annuity) and avoid possible expensive renovations to get any former home up to modern letting standards, but allow you to buy a more suitable property to let out when the income produced could be used to help reduce any shortfall in fees. This in turn could possibly reduce the amount of any annuity required, making it cheaper to buy. Alternatively to avoid the possibility of any rental income stopping during any un-occupancy, any income produced could be used simply to start replacing money spent on buying a larger annuity. 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.
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