21 December 2017
Options for funding care home fees
How best to pay for a stay in a care home is a topic we are frequently asked about. There are a few different choices for self-funders, and this article outlines the main ones.
Nicky Cave is a Care Fees Adviser and Managing Director of Eldercare Solutions Ltd, and she is an Advisory Board member of the Society of Later Life Advisers.
Do I have to sell my property to pay for care?
No, not necessarily. If you have funds of less than £23,250 in England (£30,000 in Wales) then, following on from the 12-week disregard, you can ask your Local Authority for a deferred payment agreement. They should agree to lend you the difference between your existing income, including any rental income from the property, and the cost of your chosen care home. The money is repaid to them out of your estate after your death. In the event of you living in care for several years, however, the debt could end up offsetting most of the equity in the property. Income tax would be due on any rental income, and capital gains tax may be due once you have lived in the care home for three years. The Local Authority will charge a setting-up fee and will charge interest on the debt.
Investing my money
If you have a significant amount of capital, then investing it wisely may produce the income you need to meet the ‘shortfall’ between your care home fees and your pension(s) and Attendance Allowance, but in the current economic climate this is becoming a much less viable option unless you are prepared to invest in higher-risk funds. An investment of, say, £250,000 would generate you just £7,500 per year of income assuming it were possible to secure a 3% net rate of return. The money could therefore still run out if you live in care for several years.
Buying a care fees annuity
As both the deferred loan and the investment options carry a degree of uncertainty, some people prefer the option of buying a care fees annuity. This is a plan which has been specifically designed to take into account your age and state of health. It therefore offers much higher rates of income than a standard pension annuity. You buy the plan with a one-off lump sum (usually from a property sale or savings), which is non-refundable if death occurs more than six months after buying the plan unless you pay for extra ‘capital protection’. The income from the plan is paid, tax-free, to your care home for the rest of your life.
You can choose to have an income that stays the same or one that increases by a fixed percentage each year and, if you move care homes, the plan simply moves with you. Any money spent on the plan will immediately reduce your estate for the purpose of Inheritance Tax. The Financial Services Compensation Scheme covers these types of plan, guaranteeing 100% of the income that you buy with no maximum cut-off point.
If you are able to tell us your age and how much income you would require from such a plan (usually this would be your care home fees less any existing guaranteed income that you already receive), we would be able to give you an idea of the likely cost of a plan so you can decide whether it is worth researching further and, of course, answer any other questions that you may have.
For more information on all aspects of financing a stay in a care home, please visit www.eldercaregroup.co.uk, where you can download a free copy of our guide
‘Paying for Care’, or call us for a chat on 0800 082 1155.
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