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How to pay for care
When it comes to paying for care, thoughts often turn to selling the family home — but this isn’t the only option.
Paying for a care home
About two-fifths of residential care home places are paid for by residents. Local authorities use a financial assessment (see the section The cost of care), also called the means test, to decide if they should contribute to an individual’s care costs.
If your relative has a weekly income high enough to pay for their care fees, they won’t be eligible for funding and must pay their own residential care bill. The same applies if they have capital (savings, assets and investments) worth more than:
- £23,250 in England and Northern Ireland
- £28,000 in Scotland
- £50,000 in Wales.
Will you have to sell the family home?
So, what are your options if state funding is not on offer? Savings might cover the costs for a while, but many people eventually need to think about selling their most valuable asset – their home – even though they may have hoped to pass it on as a lasting legacy. However, before selling the family home, there are other funding options to consider.
If your relative doesn’t have enough money to pay their fees and is finding it hard to sell their home, or doesn’t wish to sell their home, they can request a long-term loan known as a ‘deferred payment scheme’ (Northern Ireland excepted). This means the council will pay residential care costs for your relative and secure the loan against their property, until he or she dies or the property is sold. At that point the loan will be repaid to the council.
Renting out the home
Renting out the home might help to provide income to cover some care fees. Be aware, though, that some homes will need extensive updating to be rentable. There will also be ongoing expenses to factor in, such as a rental agent’s fees and maintenance costs, and the extra income could create tax liability or affect some entitlement to benefits.
Buying an annuity
An immediate needs annuity is a specialised insurance policy that provides a regular income in exchange for an upfront lump-sum investment. The income is tax-free when it’s paid directly to a care provider and is guaranteed to pay for care costs for life.
The cost of the policy will be based on the individual’s age, health and estimated life expectancy. Although potentially expensive, it offers peace of mind because you won’t run out of money and have to look for other ways to pay care fees.
● Is your relative claiming all of the benefits and allowances they are entitled to, including attendance allowance or personal independence payment (PIP)?
● Have they had a needs assessment from their local authority’s social services department?
● Have they consulted an independent financial adviser about making the most of investments and income?
● Has your relative chosen a care home that will be affordable over the long term? The average stay is about two years, but some residents will need to be there for far longer – and the fees are also likely to rise each year.
● Would the local authority assist with the fees of the care home your relative has chosen if they need to fall back on state funding in future?
If you're still not sure where to start, our care home finance articles can point you in the right direction.
Paying for home care
If your relative is applying for local authority funding for care at home, the same capital thresholds outlined in the section The cost of care will apply. The financial assessment considers capital and income but, importantly, it does not include the value of your relative’s main home in this case.
However, there are some complex guidelines governing exactly how their capital and income will be assessed, and there are also significant variations in entitlements depending on where in the UK your relative lives.
For more information and advice, read our articles on financing home care.
Equity release can be an effective way of funding care for a loved one in their own home. It frees up some of the value from their property, while allowing them to continue living in their own home.
It’s important to remember that equity release is, in effect, a loan secured against their home, and will need to be repaid in full, plus interest, either when they go into long-term care or after they die. It suits some people, but it can be expensive and inflexible. It is important to get independent financial advice from an equity release specialist.
Buying somewhere smaller or less expensive to live is another way to release cash from a home, without owing a fortune in compound interest. The downside is that your relative will have to move house, and this will come with its own costs. See the section Moving out for more.
Our money experts help you navigate the complex financial landscape. Find information on planning for the future, from pensions and equity release to financing long-term care.
You may have heard of people reducing their capital by ‘gifting’ property or other assets to family or friends. In theory, this could help someone to become eligible for care funding, but there are very strict rules around giving away assets. The rules on gifting are complex, and if not handled correctly, gifted assets could still be counted as part of someone’s capital. Always seek independent financial advice before considering this approach.