“Therefore we do not lose heart. Though outwardly we are wasting away, yet inwardly we are being renewed day by day.”2 Corinthians 4:16 New International Version UK
“The righteous will flourish like the date palm [long-lived, upright and useful]; They will grow like a cedar in Lebanon [majestic and stable]… [Growing in grace] they will still thrive and bear fruit and prosper in old age; They will flourish and be vital and fresh [rich in trust and love and contentment].”Psalm 93: 12-14 Amplified Version
If the last years of our life are to be spent in residential care it can be a time to think back on so many memories, to make new friends and be a blessing to those who are there to meet our needs. Our final act is then to pass on the wealth we have created to those we love and others we have decided to help.
According to Statista, in 2020, there were 490,326 people living in care homes in the United Kingdom. In other words, nearly half a million people live in care homes across the UK. The population was higher in England than in any other part of the UK. In 2020, over 418 thousand people were living in care homes in England. This is 4% of the total population aged 65 years and over, rising to 15% of those aged 85 or more.
If you dread the thought of spending your final years in a care home, therefore, the good news is that the odds of avoiding this are in your favour. That is, only one in 25 of the population over the age of 65 lives in a care home and less than one in 6 of the population over the age of 85.
Care Home Fees
Care home fees have been rising at above-inflationary rates for many years. This is partly due to the fact that the largest expense is staff costs and the use of agency nurses etc to cover staff illness and holidays. In the South East care home fees are typically £4,000 to £5,000 a month with some luxury care home charging more.
For more information of fees in different areas and care fees generally please refer to https://www.which.co.uk/later-life-care/ There are further useful links at the end of this topic.
The effect on the next generation
It is clear that the population of the UK is increasingly aging. People are living longer through better awareness of the need to keep healthy and advances in medical science.
Both men and women now live, on average, around seven years longer than they did 40 years ago.
Some people will have children living near to them who may be happy to take on some of the nursing care, but most people prefer not to be a burden on their family who have their own lives to lead.
Whilst many people can now afford to pay the cost of nursing care, there is fear that the estate that they wanted to pass on to their children and grandchildren could be drastically reduced by a lengthy period of needing care.
The notion of wealth cascading down the generations is often now a pipe dream. Indeed, many children find themselves funding their ageing parents, rather than inheriting anything from them.
It is clear that those with relatively meagre assets or income will still need to substantially contribute towards the costs of their own care.
What assistance is available for Care Fees Funding?
As a result of the National Health Service and Community Care Act 1990, commonly referred to as the Community Care Act which became law in April 1993, local authorities are legally obliged to carry out an assessment of the need for care services where this is drawn to their attention. The initial request can come from you, a relation, or your carer.
The assessment that your local authority makes will be based on guidelines provided by the Department of Health. These are the Charging for Residential Accommodation Guidelines (CRAG).
The majority of people reading these notes are unlikely to be able to qualify for assistance from their local authority. Nevertheless it is important to know the rules.
|Your Capital||Possible Assistance|
|£23,250 or more||None. In England and Northern Ireland, local authorities are only expected to fund residential care where an individual’s capital is less than £23,250. The equivalent figure for Scotland is £28,500 and for Wales £50,000.|
|Between £14,250 and £23,250||Partial. If the individual’s capital is between £14,250 and £23,250 it is converted into ‘tariff income’ which is then added to the individual’s other income to determine their ability to fund the care. Tariff income is £1 per week for every £250, or part thereof, of capital between £14,250 and £23,250. The equivalent figure for Scotland is between £18,000 and £28,500. There is no equivalent for Wales as the local authority may fund the full cost of residential care below £50,000.|
|Less than £14,250||Full. If the individual’s capital is less than £14,250 it is disregarded from the assessment process and, depending on income, the local authority may fund the full cost of residential care. The equivalent figure for Scotland is £18,000 and for Wales £50,000.|
It is important to note that local authorities cannot assess the joint resources of couples. Instead they have to look at the income and capital of the person requiring the care.
There are some circumstances where the value of a former home must be ignored for the purposes of a capital ‘means test’ – such as where a spouse or partner, or a relative who is incapacitated or over 60, continuing to live in the property.
Whatever the case, the local authority must disregard the property for 12 weeks from the start of care home admission.
Non means tested allowances
Registered Nursing Care Contribution
One area of financial relief is that there is a weekly payment towards the cost of nursing care for residents in a nursing home, whether run by a local authority or private. This is called the registered nursing care contribution (RNCC).
This payment is not means tested and is paid directly to the care home and so will reduce the overall fees.
The actual amount of Registered Nursing Care Contribution paid depends on where you live in the UK.
|Region||Rates of Registered Nursing Care Contribution|
|England||£187.60 a week|
|Wales||£179.97 a week|
|Scotland||£87.10 a week for nursing care and/or £193.50 a week for personal care – up to a total of £261 week|
|Northern Ireland||£100 a week|
Another area of financial relief is Attendance Allowance. This is paid to anyone over the age of 65 who is either ill or disabled and who requires help with a number of daily functions such as washing, mobility or eating. It is not means tested and is paid tax free.
Lower rate – £61.85 Frequent help or constant supervision during the day, or supervision at night
Higher rate – £92.40 Help or supervision throughout both day and night, or you’re terminally ill
You could get £69.70 a week if you are aged 16 or over and care for someone at least 35 hours a week. You do not have to be related to, or live with, the person you care for. You do not get paid extra if you care for more than one person.
If someone else also cares for the same person as you, only one of you can claim Carer’s Allowance. Carer’s Allowance is taxable.
Treatment of your capital
If you are seeking to obtain assistance with care fees from your local authority you will need to undergo an assessment at which you will be expected to give details of your assets.
This will include all of your bank and building society accounts, National Savings, ISAs, shares and other investments, land and property (both in the UK and overseas), business assets and property held in trust.
However, it is important to be aware of the treatment of certain types of assets, in particular the family home.
Your personal possessions are not treated as part of your assets for this purpose unless the local authority feels that you acquired such items as a result of ‘extravagant expenditure’.
Jointly Held Capital
Your bank accounts and some investments may be in joint names. In such a case the local authority will typically treat such assets as being owned equally and only take 50% of their value into account.
There are advantages for elderly couples in splitting their savings and investments into their individual names. This will allow each spouse or partner to benefit from local authority assistance as early as possible.
Jointly Owned Property
If your spouse or partner is likely to need care you should consider changing the ownership of your property from ‘joint tenancy’ (i.e. the normal joint ownership of a property) into ‘tenants in common’.
You can then leave your half of the property to your children or other beneficiaries in your will, rather than allow it to be caught up in a means test for care should you pre-decease your spouse or partner.
Capital under Trust
Here it depends on whether you have an absolute entitlement to the capital or income from the trust. In this case the trust asset will be treated as yours.
If, however, the trustees have discretion to make payments of capital or income to you then the local authority will only take account of the payments that you have actually received.
The value of your home is not included in your capital if you are arranging a temporary stay in a care home. Your family home will also be left out of the equation if it is occupied by:
- your spouse or partner (or someone you live with as though you are married).
- a relative who is aged 60 or over or a younger relative who is disabled. There is a list of which relationships would constitute a relative.
- a former spouse or partner who is divorced or estranged from you but who is a lone parent.
- a child under 16 years who you are liable to maintain.
The local authority also can use its discretion to disregard your property where it is the home of someone not included above.
Your home also has to be disregarded for 12 weeks from the date of your admission to residential care (i.e. on a permanent basis). If you sell your property during the 12 weeks then it is taken into account immediately so this is not usually a sensible thing to do.
Finally you can ask the local authority to offer you a ‘deferred payment agreement’. Under this they would agree to provide funding on a loan basis (without interest) to be repaid when the property is sold. The local authority does not have to offer you this but it is certainly worth asking.
The benefit of the deferred payment agreement is that you can sell your home at a time when it might fetch a better price and if house prices rise generally the beneficiaries of your estate will benefit from this. In the meantime you could rent it out and put the additional income towards your care fees.
Most life assurance companies offer one or more investment bonds which have a variety of names such as Investment Bond, Capital Investment Bond, Distribution Bond, With Profits Bond or Property Bond. All such bonds are technically single premium life assurance bonds. These were more popular in the past than they are today but many elderly people still have one or more of these.
Charging for Residential Accommodation Guidelines (CRAG) states “If an investment bond is written as one or more life insurance policies that contain cashing-in rights by way of options for total or partial surrender, then the value of those rights has to be disregarded as a capital asset in the financial assessment for residential accommodation.”
Whilst the local authority should disregard the capital value of any investment bond they will be able to take into account any withdrawals of capital from the bond which they will treat as your income.
It is important that the local authority is not given any reason to believe that the bond was set up to deliberately deprive them of your assets. Clearly this will not be the case if the bond was set up many years ago. In this case it is important to leave the bond intact, including stopping any regular withdrawals, and use other funds first for the payment of care fees if possible.
Deprivation of Assets
It is important to note that if you are found to be ‘depriving’ yourself of capital by, for example, giving away assets in order to obtain benefit or increase your benefit, you can still be treated as having the capital in question.
If any transfers are made in the six months before entering residential care, the local authority is likely to try to reclaim money from whoever received the transfer of the assets.
This does not mean, however, that the local authority will not investigate transfers made earlier than six months previously. Generally, the intention behind any transfer of assets will be looked at, rather than how long ago the transfer took place.
There is useful case law on this which should act as a warning to anyone who thinks that they have found a way of out-thinking their local authority on this matter.
Calculating the cost of care shortfall
Whether you wish to fund for possible care fees in the future, or there is an immediate need to cover nursing home fees, the following steps can be used:
|(1)||Identify your net income. As your care fees are likely to be quoted monthly it would be useful to identify your monthly income after allowing for tax. This should be your income from all sources including state benefits. If you have capital which could produce an income it would be helpful to allow, say 2% net from this to help you arrive at a realistic overall income figure.|
|(2)||Identify your current and future expenditure. Your current expenditure should be easy enough to identify. However, if you want to know what the funding shortfall might be in a residential care home, you should be able to identify various items of expenditure such as mortgage costs and household bills that would no longer be required.|
|(3)||Calculate your current and future income surplus, ie (1) – (2) in each case. Hopefully there will be a surplus bearing in mind this is before you take account of the care fees.|
|(4)||Identify the expected care costs. You will have these to hand if you are considering an immediate move into some form of residential care. If you are planning for the future you should take note of the fact that residential care home fees are increasing at about twice the rate of the Consumer Prices Index (CPI).|
|(5)||Calculate any shortfall. Deduct the surplus income (3) from the expected care costs (4) not forgetting to make an allowance for annual increases in the cost of care until the point you think that they might be required.|
Providing for care fees, either in your own home, or in a residential or nursing home is an expensive business. A limited amount of assistance is available from the State.
Whether your concern is your personal well-being, the preservation of your assets for your children, or indeed your concern is for your parents rather than yourself, it would pay you to consider carefully the options available.
Will and Lasting Power of Attorney
Making a Will
Leaving a valid will is an important part of financial planning for all adults, but it takes on a new urgency when you start thinking about care fees funding. If you die without leaving a valid will, the law will stipulate how your assets are to be distributed amongst your surviving relatives.
Making a will is the only way you can be sure that your wishes will be followed after you die. If you do not make a will, part or all of your estate may go to people whom you never intended to benefit.
Not only that, but Inheritance Tax legislation means that, if you do not prepare properly, a substantial part of what you leave behind may simply go to the H M Revenue & Customs.
In order to make a valid will, one of the requirements is that you must have the ‘capacity’ to do so, that is you must be mentally capable of doing so. Some of the main conditions that result in someone needing care, either in their home or residential care, such as dementia or Alzheimer’s disease, also mean that the person no longer has the capacity to make a will and so the future of their estate has to be decided by others.
Lasting Power of Attorney
This is another important issue affecting many elderly people and their families. Under a Lasting Power of Attorney you can give another person the right to look after your financial affairs. There are many reasons why you might want to do this but when planning for care many older people get to a point where they no longer wish to cope with the complicated and fast changing world of finance.
In addition to property and financial matters, a person can delegate decisions affecting their personal welfare, including healthcare and medical treatment to their attorney.
A Lasting Power of Attorney is special in that it remains valid after somebody has become mentally incapable of managing their own affairs whereas an ordinary power of attorney would cease at that point. The important issue here is that a Lasting Power of Attorney can only be set up when you are in sound mind and still capable of making decisions about the future.
An attorney can have wide, unrestricted powers to run your financial affairs, or you can place restrictions upon them. As a precaution against possible misuse of power, therefore, you should give consideration to appointing more than one attorney.
Insurance and investment solutions
For information on planning for care fees and insurance and investment solutions please go to Care Fees Funding
Links to more information
- Able Community Care – providers of live-in carers throughout the UK
- Age UK -focusing on the needs of older people
- Alzheimer’s Society – information and support for families of sufferers
- Better Caring – a resource for anyone seeking or researching care solutions
- Carers UK – general help and advice for all carers
- Care Quality Commission – registering and inspecting care services and homes in England
- Elderly Accommodation Council – advice and information
- Grace Consulting – advice about finding and funding care
- Independent Age – charity supporting older people at home
- Office of the Public Guardian – the administrative arm of the Court of Protection
- If you need personal financial advice on Care Fees Funding then I am happy to introduce you to Flying Colours Life who have access to independent financial advisers throughout the UK
This information does not constitute personal advice and should not be treated as a substitute for specific advice based on your circumstances.
Information given relating to tax legislation is based on my understanding of legislation and practice currently in force. Whilst I believe My interpretation of current law and practice to be correct in these areas, I cannot be responsible for the effects of any future legislation or any change in interpretation or treatment. In particular you are warned that levels of tax and tax reliefs are subject to alteration and, in any case, the value of such reliefs and benefits may depend on an individual’s circumstances.
If you are in any doubt as to whether any course of action is suitable for you, then you should discuss the matter with a suitably qualified independent financial adviser or other specialist.