What you need to know in 2023 about funding care fees

When selecting a care home for your loved one there are many factors to consider. One of these which is key in 2023 is how to fund your or your loved ones long term care needs. To support in this process, we spoke to Nicky Cave, Managing Director of the Elder Care Group and asked, what do families need to know in 2023 about funding care fees?

A property doesn’t always need to be sold to pay for care.

If you have funds of less than £23,250 in England then, following on from the 12-week disregard period, 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.

Limitations of ‘Pay as you Go’

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 high returns (above 2 or 3%) are usually linked to higher risk funds.  An investment of say £250,000 would generate you just £7,500 per year of income assuming a 3% net rate of return.  The money could therefore still run out if you live in care for several years.

You can ‘insure’ your care home fees

A Care Fees Annuity is a type of insurance specifically for people paying privately for their care home place but who want to ‘cap’ those care costs in the event of longevity.  They are bespoke, taking into account your age and specific 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.  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 plans, guaranteeing 100% of the income that you buy with no maximum cut-off point.

What might a care fees annuity cost?

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.  There is no cost or obligation if you instruct us to obtain fully underwritten quotes for you.