As we age, it's almost inevitable we’ll need additional care at some point, especially given the increasing chances of living to 100. This could be through the provision of additional assistance at home, or moving into a care or nursing home. We consider how you could go about protecting your children's inheritance from nursing home costs.

Understandably, one of the biggest worries that comes with this reality is how to fund the cost of care without impacting the inheritance you want to leave your children. And when it comes to care home fees, the most common question asked is, will I need to sell my home?

Here, we’ll explore the costs of different types of care, your financial obligations to fund these services and how you might go about doing that.

The monthly average cost of residential care is £4,640, while nursing care in a care home costs on average £5,640.

Will I need to fund my own care?

Data from the Office for National Statistics indicates that nearly half of individuals over 65 in care homes pay for their own care. Whether or not you’ll need to fund your care depends on several factors, including:

  • Your current income levels
  • The total value of your assets, such as property
  • The specific care needs you have
  • Possible modifications to your home that could enable you to live independently
  • Whether you have any dependents living with you

The financial burden of care can be significant. The government conducts means testing, to assess whether and how much you’d be able to contribute towards your care costs. This assessment is intended to ensure that people without substantial savings or assets can access necessary care services. However, those with greater financial resources will be required to pay for some or all of their care needs.

How much does care cost?

Generally, the cost of care escalates in line with your increasing needs. For instance, if you or a loved one only require basic daily assistance with activities like bathing and dressing, the Homecare Association states that the minimum rate for a care worker is approximately £28.53 per hour, which translates to around £9,500 annually for daily one-hour visits.

In contrast, residential care costs significantly more. The amount varies depending on where you live and the specific care facility chosen, but typically, you can expect to pay around £55,000 per year. According to carehome.co.uk, the monthly average cost of residential care is £4,640, while nursing care in a care home costs on average £5,640.

For more intensive needs, such as those requiring palliative care or specialised support for conditions like dementia, care costs an average of £5,221 a month, and nursing dementia care costs an average of £6,270 a month.

Will I receive any financial help from the state?

If your total assets fall below a certain threshold, your local authority may subsidise or fully cover your care expenses. Different thresholds apply depending on where you live:

  • £24,000 threshold for home care and £50,000 for residential care in Wales
  • £28,000 for home and residential care in Scotland
  • £23,250 for home and residential care in England and Northern Ireland

The value of your home is excluded from the means test if you continue to reside there. This exclusion also applies if any ‘qualifying dependents’ live in the house (see below).

As a result, you’re more likely to receive financial assistance for care if you opt for home care services within your residence rather than moving into a care home.

Family relaxing by the water

Will I qualify for any additional funding?

There are some additional allowances you may qualify for that aren’t means-tested. These include:

– Personal Independence Payments: if your care needs arise from a disability.

– Attendance Allowance: if you have a long-term physical or mental condition or disability.

– Carer’s Allowance: if someone is providing care for you, they might be eligible for help managing costs associated with their caregiving duties.

– Deferred payment agreement: This arrangement allows you to use up to 80% of your home’s value to cover care costs, which would be repaid from the sale of your home after you die.

How else might I fund my care?

Most people expect to pay for care by using their savings and investments, or income generated by other assets, such as rental properties. But there may be a better way to fund care fees over the long term depending on your circumstances:

– Immediate needs annuity: This is an investment you can buy using your pension pot or savings. It’s designed to fund your care expenses for a duration that corresponds with your needs.

– Deferred annuity: Similar to the above, you pay a lump sum and then receive regular annuity payments. The longer the deferred period, the lower the overall cost of the policy.

For more on annuities, see The rising popularity of annuities

Will I need to sell my home if I still can't afford my care?

No, not necessarily. The means test, which determines eligibility for care assistance, doesn’t include the value of your home if you continue living there or if any of the following individuals also live in the home:

  • A spouse, civil partner, or cohabiting partner
  • Close relatives who are either disabled, over 60, or under 16 for whom you have a legal responsibility
  • An ex-spouse or partner who is a single parent

However, if your home is occupied by tenants, lodgers, or adult children under 60 and in good health, its value may be included in the means test. In such cases, you might have to consider selling your home or releasing equity from it to manage care costs.

Pitfalls to avoid

- Gifting your home to your children

If you’re facing potential care costs. you might consider transferring your home to your children to protect your property. While this might sound like a straightforward way to safeguard your assets, it’s actually fraught with complications. This tactic is known as ‘Deliberate Deprivation of Assets.’

Essentially, if you give away assets to qualify for care assistance, authorities will still count those assets as if you own them when assessing your financial situation. This could not only leave you in a worse position than before but also potentially put the recipients, like your children, in the awkward position of being responsible for some of your care costs. So, although it’s tempting, this strategy can backfire significantly.

For more on gifting, see Gifting in your lifetime to reduce inheritance tax

- Putting your home into trust

You might have heard that setting up a trust with your home can help dodge care home fees and cut down on inheritance tax, making it sound like a smart financial move. The idea here is that once your property is in a trust, it’s technically not yours anymore. So, theoretically, it shouldn’t count in a means test when it’s time to assess your assets for care funding.

However, when the time comes to move into a care home, and the local authority checks your finances to determine if you can pay for your own care, you may encounter problems. Despite what some trust companies promise, using a trust to shield your assets can sometimes prove counterproductive.

Authorities might see it as a deliberate move to hide your assets, and class it as a deliberate deprivation of assets. If that happens, they will still count your home as part of your capital, which could affect your eligibility for funding. Plus, the trust holds onto your property, possibly leaving you regretting a decision that was both costly and time-consuming.

Amber River financial planning for care planning needs

Planning ahead for the possibility of long-term care is essential, not only to secure your future but also to protect your finances as you age.

At Amber River, our independent financial planners can build a comprehensive financial plan, which includes provision for potential care home fees. That way you’ll have a strategy that prepares you for all eventualities and helps safeguard the money you want to leave behind.

Get in touch

Amber River has a network of Chartered financial planners right across the UK, ready to offer truly independent advice. If you want to set up an initial appointment, call 0800 915 0000, or alternatively use our contact form here.

Care Home Fees Estate planning Financial Planning Gifting IHT Inheritance Tax Planning Later-Life Planning