Who pays care home fees?
You have to pay for your own care costs if the valuation of your personal assets (including property, money, possessions, etc) exceeds the national threshold.
What is the national threshold?
The threshold is different for people in England and Northern Ireland than it is for those in Wales or Scotland.
The thresholds are as at 2023:
England and Northern Ireland = £23,250
Wales = £50,000
Scotland = £28,750
If the total value of all your assets is over the threshold, you will be classed as ‘self-funding'. This means you will be expected to pay for your care fees in full from your own income, savings, or your property’s value either through equity release or by selling it.
What will happen to my property if I go into residential care?
If you ever needed to go into residential care permanently, you may have to sell your property to pay for the costs, unless it's occupied by:
your partner or former partner (unmarried), unless they are estranged from you
your estranged or divorced spouse or civil partner IF they are also a lone parent
a relative who is aged 60 or over
a relative who is disabled
a child of yours aged under 18 years
Your property will be assessed on its market value, minus any loans (or mortgages) on it, and minus 10% for selling expenses.
How can I protect my property from being used to pay care fees?
It is better to plan in advance to prevent your property being sold to pay for your care home fees in the future, which could leave your children or family with little to no inheritance.
You do have a few options to protect your property from care fees, such as:
Exploring payment options
There are some payment options available to help prevent your property being sold for care home fees, including:
Care Annuity: An insurance policy to pay for long-term care.
Deferred payment schemes: Local authorities offer these schemes as a flexible way to pay for long-term care.
Equity release: Releasing equity in your home to pay for care fees. There are significant risks in doing so, so you should always seek professional independent financial advice first.
Rental income: You could consider renting out your property if it could generate enough income to pay for your residential care, rather than selling it. The property income would need to cover the significant costs per year.
Make a financial gift to your children to avoid care home fees
Many people will be tempted to simply gift their money/property to their children, to avoid care fees. However, you need to be very careful as this gift could be classed as a Deliberate Deprivation of Assets. This is when a local authority decides that you have deliberately reduced your capital to avoid care home fees. They could argue this if you have gifted away assets; spent large amounts of money prior to your care needs assessment or sold an asset for less than its market value.
If your local authority believes you have deliberately reduced your assets to avoid paying for care, they will take action to recover the costs. You may find that you have lost the assets and still need to pay for the care fees, putting you and your family in a worse financial position.
Many people believe that if you transfer your assets and survive for 7 years, this cannot be considered a deliberate deprivation of assets (commonly known as the ‘7 year rule’). However, this is a myth; the local authority can go as far back as they like when considering whether or not a gift is a Deliberate Deprivation of Assets, there is no time limit.
There is a 7-year rule for inheritance tax gifts, but this is a separate consideration and does not apply here.
Create a Life Interest Trust in your Will
If you own a property in joint names as tenants in common, you may be able to ring-fence (thereby avoiding care home fees on that share) a share of the property after the first partner’s death for your children. Unless you also have in place a Declaration of Trust to show that you own the property in unequal shares, it will be deemed that you would each own half of the property.
The value of half the property is protected by the trust when one partner dies. This means that the surviving partner keeps their half of the property, whilst the other half is held in trust and therefore NOT liable for care home fees. This is because the share of the property that is in trust never passes into the survivor’s estate from which fees can be paid, yet they can still use the property as if it is owned fully by them. The trust can also allow them to take income (such as rent) from the property during their lifetime.
For example, if a house is worth £200,000 when the first partner dies, only £100,000 would be considered for care home fees and the other £100,000 would be ring-fenced for your children or loved ones to receive as inheritance upon the death of the second partner.
What can I do?
Whilst you cannot avoid paying care fees altogether, by seeking professional help in advance, and with careful estate planning, you can take steps to protect your assets, particularly your family home.
Contact us today for further advice on this topic, if it is of concern to you and your family - 01208 812415 or info@macmillans-solicitors.co.uk.