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For a brief moment, it seemed that one of life’s toughest financial puzzles was about to be solved.
It was 7 September 2021 and the government had announced plans to introduce a cap of £86,000 on the total care fees anyone would pay over their lifetime, with the state paying the rest.
The cap was scheduled for 2023, and from day one it was surrounded by questions over how it would be funded and whether it would apply beyond England.
Last year, it was scrapped by the new government, which has launched a commission to look at replacing it with a National Care Service – but this won’t make recommendations until 2028. Changes could take several years to materialise.
All of which means that if you’re planning your retirement or your inheritance, you can no longer bury your head in the sand about care costs.
Here, we explain how much you are likely to pay, if you're eligible for funding and whether you'll need to sell your home to fund it.
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Care in your own home can be expensive (the NHS estimates £800 a week). But if you have to move into a care home, the costs really begin to add up.
As a report on care homes by research firm LaingBuisson notes, fees have outpaced inflation for two decades, and, despite moves to use technology to cut costs, ‘the sector will probably look much the same in 10 years’.
For a typical residential care home, the average weekly cost is £1,402. But if you need nursing dementia care, the most intensive type of care, it's £1,597 a week, and this can vary further by region:
Source: Average care home costs from Lottie.org, for self-funders (those receiving no council funding), based on care homes on its site, correct as of 29 May. No average cost data available for Northern Ireland.
Worse still, there’s a growing gap between the fees councils pay to care homes, accounting for 57% of residents, and what ‘self-funders’ pay.
With councils under pressure to pay less, self-funders are making up the shortfall.
Even if you suspect that you’ll need to pay care home fees yourself, contact your local authority for a free needs and financial assessment.
The needs assessment could end up suggesting a solution other than going into a care home, such as equipment and changes to your home. It’s also the gateway to NHS funding.
The financial assessment decides if you’ll get financial support from the local authority, based on whether your wealth exceeds capital limits:
| England | Scotland | Wales | Northern Ireland | |
|---|---|---|---|---|
| Upper capital limit | £23,250 | £35,000 | £50,000 | £23,250 |
| Lower capital limit | £14,250 | £21,500 | n/a | £14,250 |
Above the upper limit, you’ll get no funding; below the lower limit, you’ll get full funding.
Even if you qualify for council funding, you’ll still need to contribute to care costs from your income – if you have a pension, for example – and the council will pay for the rest. Friends and family can pay top-up fees to enable you to access pricier care homes than those on the council’s list.
You may fall between the two limits (except in Wales, where there’s only an upper limit). For every £250 you have above the lower threshold, you’ll be treated as if you earn £1 a week ‘tariff income’, money that the council will expect you to contribute to your care. For those self-funding, coming up with an exact bill is complex.
While you can check average care home fees by region, the amount of care you’ll require will differ, as will the length of your stay. LaingBuisson estimates the average stay as 30 months for those requiring residential care in a care home and 16 months for those needing nursing care in a care home (figures for those being cared for at home aren’t available).
It may be more helpful to compare your weekly income with weekly costs, to estimate how quickly you’ll need to dig into your savings.
Only once these fall below the lower limit will the council provide funding. Bear in mind that if you already have health insurance, long-term care insurance, or an immediate needs annuity, this could help to pay the costs.
This is a type of annuity where you make a lump sum payment, and get a guaranteed monthly payment to a care provider for the rest of your life, to help cover care costs.
You can choose for this to increase each year by a fixed percentage, or increase with inflation, or remain the same.
The benefit over regular annuities is that the money is paid to care providers tax-free, whereas annuity payments would usually incur income tax if above tax-free thresholds.
The disadvantage is you can't get your original payment back if you don't need care (though some providers will let you choose for the income to be paid to you, which will incur tax).
It's worth speaking to a financial adviser before buying an immediate needs annuity.
If you own property, it’s likely to be worth far more than the upper capital limits, blocking you from funding.
But in some cases the council can’t count your home as part of your capital, for example if your spouse or partner still lives in your home. This also applies to a divorced or separated partner, a relative aged 60 or over, a child of yours who’s aged under 18 or ‘incapacitated’ (generally defined by access to various disability benefits).
Your home is also disregarded for temporary stays in care homes and for the first 12 weeks after it’s decided your stay will be permanent.
A deferred payment arrangement (DPA) – essentially a loan to pay care home fees – could help if there’s a delay in selling your home, and may mean you can avoid selling it within your lifetime. DPAs aren’t always available; you’re most likely to get one if your non-property assets add up to less than £23,250 (or £21,500 in Scotland and £50,000 in Wales). Interest and admin charges apply.
You could rent out your property while it’s covered by a DPA. But talk to a financial adviser, as that income could affect your eligibility for benefits. Also consider the practical and financial demands of becoming a landlord.
This story first appeared in Which? Money magazine. Join for reviews, features and investigations, plus 1-to-1 guidance from our experts.
Sign up nowGiving away assets in your lifetime can be an effective way of avoiding or minimising an inheritance tax bill.
However, making gifts (or placing assets in trusts) could be seen by local authorities as ‘deliberate deprivation of assets’ to qualify for funding, and they could go after the recipients of gifts in order to pay your care fees.
Catriona Smith, an independent financial adviser at Chase De Vere who specialises in later life planning, says that ‘the timing of the gift is usually more relevant than the type of gift which is made’. The healthier you are, the less you could have reasonably expected to need care.
Some gifts are less likely to be considered deprivation of assets, such as giving wedding presents and gifts from surplus income. Keep records to prove these gifts are ongoing and didn’t affect your standard of living.
The timing of the gift is usually more relevant than the type of gift which is made
However, Smith sees transferring ownership of your home as ‘a high-risk strategy which could have wider ranging personal or financial implications’, with fallings out, divorces and bankruptcy causing complications. If you continue living in your home, you’ll be expected to pay rent at a market rate.
Planning ahead is crucial, but Smith warns against confusing tax and care rules. While no inheritance tax applies to gifts made more than seven years before your death, local authorities can investigate any gifts you’ve made, regardless of when you made them.
With estate planning and care cost planning so intertwined, consider speaking to a financial adviser. Look for one accredited by the Society of Later Life Advisers (Solla) and who has a CF8 qualification from the Chartered Insurance Institute.
The NHS continuing healthcare (CHC) scheme might seem like a silver bullet for paying care costs – but the reality is murkier.
In theory, the NHS will pay for your care, regardless of your wealth, if you have long-term and complex health needs. You don’t have to move into a care home; instead funding could be used to get care provided in your own home.
The application involves two assessments by healthcare professionals, and your eligibility is reviewed annually, so funding could be cut.
The chances of getting NHS CHC funding are slim and vary significantly depending on where you live. Between 1 January and 31 March 2024, just 21% of applicants were deemed eligible. This ranged from 7.4% in Gloucestershire to 42.5% in Leicester, Leicestershire and Rutland.
Even if you’re deemed ineligible for NHS CHC, assessors could still decide you need NHS-funded nursing care. This is a contribution of £235.88 a week towards a registered nurse’s services, regardless of how you pay for the rest of your care.
