In September last year the government announced new long term care funding proposals.
At the time, the headlines were mainly focussed on the upper threshold (the point at which you need to pay your care costs in full) moving to £100,000 and the overall cap on care costs being £86,000.
The Conservative party were keen to sort something on social care as in their 2019 manifesto they stated that “Nobody needing care should be forced to sell their home to pay for it”.
As always the devil is in the detail and this new cap is not all it seems. In fact you may find you still contribute far more that the proposed £86,000 cap if you need long term care at some point in the future. Meaning there is a real danger your home could still be sold to pay for it.
New long term care funding announcement
Long term care funding is a very complex area and the rules are different between England, Scotland, Wales and Northern Ireland.
In this article I will focus on the English rules but I am happy to discuss the devolved nations separately if you wish to contact me.
Keeping things simple and looking at the top level.
When going into care, any income you receive will be used to help pay for your care costs. So things like your pension income, rental income and investment income will all be considered.
Everyone is entitled to keep some of their income for their Personal Expense Allowance which is currently £24.90 a week (2021/22).
Currently, if you have ‘capital’ above £14,250 you would be expected to also use some of this to pay for your care.
Capital includes things like your savings, investments and property (including your home).
If you have capital worth between £14,250 and £23,250 then you would need to use some of this to pay for your care and the Local Authority would also contribute.
If you have capital above £23,250 you would be expected to pay for all of your care until your capital ran down to £23,250.
Under the new rules that are due to come into force from 2023 you would be expected to pay for some of your care if you have capital between £20,000 and £100,000 and all of it if your capital is above £100,000.
This time however there is an overall cap of £86,000 on the care you self-fund. With the idea being that once you had paid out £86,000 towards care costs you shouldn’t have to pay any more.
BUT the cap is not all it seems. The cap only covers the cost of care provided as assessed by the Local Authority. It does not cover daily living costs like board and lodging and won’t apply if you choose a higher standard of care than is required.
Here’s an example:
Gregory requires care in a care home in 2023.
The total care home costs are £1,200 per week.
The Local Authority assesses Gregory’s care needs and conclude his Independent Personal Budget is £600 per week.
- Of this, £400 is the care cost element and
- £200 is the daily living cost element.
As Gregory has capital valued above £100,000 he is required to fund all of his care.
Only £400 per week of Gregory’s actual total care home costs will count towards the cap.
In the example above, if costs stayed the same, Gregory would actually need to pay out £258,000 before he reached the care cap.
So a lot more of your capital above the proposed cap of £86,000 is still going to be used up before you reach the cap.
Protecting your assets from new long term care funding
So funding Long Term Care is still a big issue.
As you enter retirement, thinking about long term care should be on the list of financial planning priorities as planning ahead is better than reacting when the time comes. You have more opportunities now to protect your assets rather than waiting.
Here are some ideas to explore for funding long term care and protecting your assets.
1. Lasting Powers of Attorney (LPAs) – Ensure you have LPAs in place now so you get to choose who you would like to make decisions about your health and welfare. This makes it easier for loved ones to control your money and get the care you need when you don’t have the ability to.
2. Gifting – If you can afford to, you could transfer assets to your loved ones now so these assets are not included in your ‘capital’ assessment when funding care in the future. But be careful of Inheritance Tax implications. If you plan to gift all or part of your home and still live there you might find it is classed as a ‘gift with reservation’. The Local Authority does also have the power to reverse gifts if it thinks you have deliberately tried to avoid care fees. So the earlier you gift the better.
3. Trusts – Setting up Trust funds for your loved ones and transferring assets into them now or on death could be a good way of getting assets out of your estate. This means they cannot be assessed for care and also has Inheritance Tax benefits.
4. Investing – There are certain types of investments that are not counted towards your capital assessment for care costs.
Along with Inheritance Tax, long term care is a massive threat to the wealth you have built up during your lifetime.
This is why we as a financial planning firm spend so much time reviewing this for our clients and building new long term care funding strategies.
Also remember that at the same time as announcing these new long term care funding proposals, the government also announced a new rise in National Insurance payments so there are options you need to think about here in terms of tax planning.
If you would like help protecting your assets please schedule a no obligation free 15-minute call.
Risk warning:
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.
