In recent years, the issue of long-term care has moved up the political agenda. It’s not surprising when you consider one media report revealed that between 2000 and 2019, as many as 330,000 homes were sold by pensioners to pay for care costs.
To address this, the prime minister announced his health and social care reforms in September 2021, which included plans to limit the amount you will pay for your care to £86,000. What you may not realise though, is that this only covers certain elements of your care, and you could still be liable for significant costs.
Read on to discover more.
Currently, care costs could exceed £48,000 a year
Generally, there are two different types of care, which differ in cost. These are:
- A nursing home – this type of home uses registered nurses to provide care for people
- A care home – these homes typically use assistants to look after residents.
According to Which?, the average cost of a residential care home in the UK was nearly £35,000 a year in 2019/20, and a nursing home was £48,734 a year during the same period. This means that if you’re in a nursing home for two years, you could pay nearly £100,000.
It’s also worth remembering that care providers could increase fees as costs soar in the wake of Covid.
Currently, there is no maximum on care costs
The social care system differs from the NHS, as it’s not free at the point of use. That said, if you have dementia or long-term complex health issues, you may be eligible for NHS Continuing Healthcare (CHC), which means your care costs are paid for you.
If you do not qualify for CHC and have assets above £23,250, these will typically be used to pay for your care and currently there is no maximum. If you have assets between £14,250 and £23,250, the amount you contribute is based on a sliding scale.
Assets include savings, property, and investments. Furthermore, any income you receive may be used to pay for your care, other than the £24.90 a week you’re allowed for personal expenses (2021/22).
If you have more than £23,250, the cost of your care could substantially reduce your wealth and the amount you can leave to loved ones when you die.
The local authority may help with care costs – but there’s a catch
While the local authority may cover the cost of your care, it’s based on means testing. If the authority agrees to fund your care, it’s usually on the understanding that the costs will be repaid through the sale of your home when you die.
Typically, this is done using a deferred payment agreement (DPA).
Strict rules apply to DPAs, which means, for example, that your home cannot be sold while your spouse is still living in it. If you are considering an agreement, speak to a financial planner, as they can explain what’s included within it.
The government plans to change the rules
In September 2021, the prime minister introduced reforms that included a 1.25 percentage point increase in both National Insurance contributions (NICs) and Dividend Tax. The increase is expected to raise £36 billion over the next three years, of which £5.4 billion will go to social care in England.
Mr Johnson also pledged that, after October 2023, you will not pay for your care unless you have more than £100,000 in assets.
If you have between £20,000 and £100,000, contributions towards care will be based on a sliding scale, and you will not have to pay more than 20% of your assets each year. If you have less than £20,000, or your assets fall below this level at any point, you will not pay towards your care.
In addition, Mr Johnson introduced an £86,000 cap on care costs after 2023.
Even with the £86,000 limit, your home may not be safe
While this is welcome news, in September 2021 the Telegraph revealed that the cap only covers “personal care”, such as washing and eating. Non-personal care costs such as food, rent or energy bills will not be covered by the limit, meaning you could still face significant costs.
The Telegraph points to estimates by retirement firm Just Group that suggest someone paying £1,100 a week for residential care will typically spend around £350 on personal care. As such, only £18,000 of their £57,000 annual care fees would be classed as personal care, meaning it would take five years to reach the £86,000 maximum.
This could mean the total expenditure could be £296,000 during the five years, something that could mean you having to sell your home to cover it.
A financial planner could help
In the past, investments existed that might protect your wealth from care costs. While these are no longer available, you may have longstanding investments that benefit from this, and a financial planner could clarify this for you.
An insurance product called an “immediate needs annuity” may also help with the cost of care. While this is likely to be expensive, it could provide peace of mind that if you spend longer than expected in a care home, your wealth is protected from ongoing costs.
A financial planner can explain whether this might be right for you.
They can also explain the little-known deliberate deprivation of assets rule. This allows a local authority to claw back any gift you have made if it suspects you did so to dodge care costs.
If you would like to discuss ways you could prepare financially for your long-term care, or your wealth more generally, email us at admin@stonegatewealth.co.uk or call 01785 876222.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Production
