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paying for care

Paying for Care

If you need to pay for your own care, there are a number of methods you can use.

Moving into permanent residential or nursing care, means that the care fees you pay will usually cover all your living costs (Food, Electricity, Council Tax etc) as well as your care needs, so most of your income can be used towards payment of your care fees.

The remaining shortfall between the care fees and your income, will then need to be covered by making use of any savings and investments, or from the sale of your property.

You could choose any of the following methods to cover this shortfall:

  • Using the income generated from savings/investments
  • Using the capital from savings/investments
  • Purchasing a special Care Fees Annuity

Care fees annuity

The annuity (commonly known as a ‘Care Fees Payment Plan’ or ‘Immediate Needs Annuity’) is specifically designed mainly for the elderly who have assets above the means tested threshold for Social Services financial assistance, and are receiving or about to receive care. 

It’s purchased by making a one-off payment (a ‘Single Premium’) to an insurance company, who will then make monthly payments to your care provider, for the rest of your life.

Once in place the annuity can be transferred between care homes, and if your care needs change in the future, an additional annuity can be purchased at that time, to cover any significant increase in fees.

The annuity can include a regular increase each year, to offset any annual increases applied by the care home, and the Single Premium can also be protected to provide the option of some of the premium being returned if death occurs in the early years of the policy.

The most suitable method will depend on your specific financial circumstances, but for a number of people, the purchase of a Care Fees Annuity is a good option.

The main advantage is the peace of mind as it completely guarantees to pay the care fees for as long as necessary and that both the elderly person and/or their family know that the money will never run out.  Other advantages include:

  • Remaining investments can be better invested to produce growth rather than income
  • As the benefit is paid directly to a registered Care Provider it’s completely tax free and will not affect any allowances being received
  • Generally a lower premium will apply as it’s calculated on the specific health of the person going into care rather than a general rate for their age group (the premium is based on the amount of shortfall in payment of fees after taking into account the current income, the age and medical situation of the recipient)
  • Where the total assets exceed the Inheritance Tax (IHT) limit, making a payment to a Care Fees Annuity will immediately reduce the level of assets liable to IHT, leading to a potentially significant saving in Tax
As with all investments there can be associated risks, the main one being if you die early in the plan (although there are ways of mitigating this).

Property

As our older population increases so does the number of older people who own their own homes and consequently fail the means test for care and have to pay for it themselves.  However people are often reluctant to sell their home, especially at a time when house prices are depressed and fewer people are able to secure the necessary funding to purchase a property.

Jointly owner property

If you jointly own your property and will be continuing to live there after your partner moves into care then it is disregarded from the means test calculation. If you decide that you want to sell and move to a smaller property, half of any capital proceeds realised as a result of the sale will then be regarded as the assets of the person in care, and included in their means-test calculation.

It is not possible for any of this share to be given away to children etc, to avoid this being included in the Local Authority calculation.

Unable to sell

You can’t be forced to sell and the Social Services can lend you the money to pay for your care charged against your property value. However, they may limit how much they will pay and it could adversely effect your welfare benefit entitlements.

You could consider an equity release scheme.  These schemes can enable you to release some of the equity from your property, in return for giving up a share of it’s value, which can then be used to help fund your care fees. There are, however, different types of schemes available, with different methods of repaying the loan, and the circumstances and costs involved need to be carefully considered by a qualified Financial Adviser, to ensure that you select the best basis for your needs.

There are two main equity release schemes, the most popular of which is the Roll-up mortgage. You can take the loan either as a regular income or a cash lump sum. The interest will be added to the loan monthly or annually however you don't actually pay the interest until your home is sold. Do note that the interest is charged on the loan and also on all the interest that has already been added so the total amount owed can grow quickly.

The other main scheme is called home reversion. Here a company buys part or all of your home and you receive the sales proceeds. You'll also get a lease giving you the right to carry on living there for the rest of your life although you will have to pay regular rent.

If you move into a care home and your property is left empty then you should receive full exemption from Council Tax until it's sold.

If you want to sell your property but are unable to you may be in a situation where your income alone will not cover the cost of your care.  In this instance the Local Authority will make a contribution towards the cost for the first 12 weeks, which will not have to be repaid to them.

At the end of the 12 week period, if your property has still not been sold, the Local Authority may be prepared to pay your care fees, as a loan. A charge to cover the loan will be placed against your property, and the loan (and any interest charged) will need to be repaid to the Local Authority once the property is sold, or within 56 days of your death. Little or no interest will be charged.

Please note that the continued loan facility, after the initial 12 week period, is only available at the discretion of each Local Authority, in accordance with their budgets etc

If it’s practical you may consider renting your home out and use the income against care fees incurred

Alternatively, there are also some companies who provide an ‘Assisted Move’ service. In addition to managing the sale of your property, they also offer facilities to enable you to move into care without the need to wait for the property to be sold. These include:

  • A ‘bridging loan’ (which sometimes includes an interest-free period)
  • A monthly advance, to pay the initial care fees
  • An ‘immediate sale’ facility, for up to 90% of the property value

 

 
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