Following on from the Local Authority assessment of your health needs, if you do not qualify for NHS Continuing Care funding, the Local Authority will carry out a further assessment of your finances to see if you have sufficient assets to pay for your care yourself.
The upper capital limit for the year 2020/2021 is £23,250 in England.
The upper limit for Northern Ireland is £23,250, for Wales £50,000 if in residential care and £24,000 in non-residential care, and £28,500 for Scotland.
Once the Local Authority assessments of needs and finances have been completed if you have assets, including the value of your property, above the upper regional limits then, generally you have to meet the cost of your care yourself. This is the point when you or someone close to you needing care find out what is available and what has to be paid for.
Faced with this dilemma, where do you go from here?
There may be more funding options available than you realise as people want different things and this is where good financial planning now may avoid distressing decisions in the future. Most people want to ensure they can meet their care fees for their lifetime and preserve assets for their family. There are no winners if the finance is allowed to run out and with local authority budgets under increasing pressure a move to a cheaper care home may be inevitable.
This is where using a specialist independent financial advice service for those funding care and their families can pay dividends as they will look at the whole picture, ensure that you are receiving all your benefit entitlements, look at the available income and assets and advise you on the different ways open to you to fund the care that you or someone close to you requires.
Impartial advice is very important and all of our advisers have the necessary qualifications to practise in this area, plus they have a great depth of knowledge about the care system built up during their many years in advising families like you and yours on arranging and funding care.
Most people fund their care from savings, at least for a month or two until they have had chance to assess the situation, but it is important that this does not go on for too long as it is important to establish a funding plan with the available capital as soon as possible.
When funding care fees, income from all sources is added together and set against the cost of the care. Usually the amount coming in is much less than that required to cover the care fees and it is important that people who are meeting the cost of their care themselves consider what will happen when their personal savings have been exhausted.
If your capital is likely to reduce to the Local Authority limits fairly soon, you should approach them for assistance as they will need to make preparations to step in and take over funding your care. You should also check that your current care home will accept Local Authority rates for your accommodation. If they need more than Local Authority rates, you will need to find a third party such as a relative of friend to 'top-up' your fees or consider moving to another home which will accept the amounts paid by the Local Authority.
Using your property
It is essential that the Local Authority assessments have been completed to establish what help may be available from this source, but if the help is not available or insufficient for your needs, using equity release could be a valuable option to access monies to pay for carers and other items to make your life more comfortable. If you are receiving your care at home, many people do not realise that it is possible to release money from their home to pay for their care without having to sell it and the terms available are getting better all the time as more people use this option.
However, it is important to look at the overall situation and consider whether a move into residential care may happen in the near future because, if this is the case, the funds released using Equity Release could negate any entitlement to funding from the Local Authority that you may have received if you hadn't proceeded with the equity release in certain circumstances.
See our page about Equity Release for more information.
Using your investments
If you have a large investment portfolio, it is possible to fund your care from the income and capital generated as long as the shortfall amount is not too large and the person has sufficient capital to easily generate the income required. If you have a large amount of capital and perhaps only need to generate a low percentage of income this should be possible, but if you need to generate a percentage of income that is too much above what you can achieve on deposit, then you should be mindful that generally, the higher the amount of income required from an investment, the more risk is taken with your capital to achieve it. Obviously, there are risks with everything but, in this situation, it would be prudent to look and consider all the options open to you to meet the cost of your care.
Immediate Needs Annuity
For those about to enter care or already in care and having to pay their own fees, an immediate needs annuity is a very straightforward tax-efficient solution to meeting the costs of care. It is paid for by a lump sum premium to an insurance company with the monies often coming from the sale of the resident's home. The annuity will pay the amount covered insured for to the provider of a person's care for as long as they need care which is usually for the rest of their life. This means that, as long as the amount of cover paid for equals the amount of cover required, the risk of running out of money is minimised, if not completely removed.
The premium is calculated with reference to a person's age, state of health and sex. It is usually underwritten when a health questionnaire and reports from the care home and client's doctor have been received by the underwriter. In total reverse to normal life assurance, the shorter the life expectancy of the person, the lower the premium.
The arrangement is very tax-efficient because, although the person owns the policy, as the benefits are paid directly to the care provider and they are registered with the Care Quality Commission (England) or their equivalent authorities in Wales or Scotland, it makes no difference to the tax position of the person receiving care.
It is important that the amount insured for is sufficient to cover the shortfall between a person's income and the money going out in care fees plus a monthly amount of spending money for personal use. To remain tax-free, it cannot, in any case exceed the amount paid in care fees to the care provider. In addition, it would be wise to consider the following:
- whether to build in an annual increase as it is virtually certain that the fees will rise each year
- whether to add capital protection of 25%, 50% or 75% to the premium to ensure some return of capital in the event of the early death of the person receiving care
This option is also quite useful when there is an Inheritance Tax (IHT) liability as the cost of an Immediate Needs Annuity is an allowable way to reduce the assets of an individual's estate liable to IHT but any costs for capital protection are not permitted as a deduction.
A disadvantage of immediate needs annuities is there is usually no return of premium in the event of death. However, it is possible for an additional premium to purchase an additional policy to work alongside the immediate care plan adding capital protection at the rates of 25%, 50% or 75% to protect some of the capital in the event of a person's early death. With capital protection being added to the policy, the amount returned on death would be the amount of premium divided by the amount of cover, less the sum of the monthly payments paid up to the date of death.
There is also a 'plus' version of capital protection which can be fairly expensive but it does provide a guaranteed capital return to a client's estate regardless of when they die.
A 'mix and match' approach
Some people are more comfortable combining their options and use a care fees annuity but defer the start of payments for anything between one and five years. The premium charged becomes lower for each year of deferment but it has to be paid up front and no capital protection can be added to the policy.
In the interim period, the person will pay for their care until the chosen deferment period finishes. Again, indexation of benefits can be included to help to protect the value of the benefits when they become payable.
This is a very simplified explanation of the options available and it is important that you receive assistance from a qualified adviser to weigh up the 'pros and cons' of each choice to enable you to come to the best solution for your family.
Please contact us if you would like to speak with an adviser about your individual circumstances about ways that we could assist you.