Thinking of Selling your Home to Pay for Care?
For most people, the prospect of needing long-term care in old age is something that happens far away – perhaps 20 or 30 years down the road. But for some people, it could happen sooner rather than later.
For others, it might come unexpectedly, from a stroke or heart attack. Whatever the circumstances, it’s important to start the process of careful planning now.
You need to think about if you’ll be needing care, if live-in care is preferred, or about a potential move into a care home. And most importantly, about how you will pay for your care, and your future care home fees/home care fees.
Long-Term Care Funding Options
In this helpful guide, we will show you how you can pay for your care without selling your home.
As the average cost of residential care across the UK in 2020 came in at a whopping £34,944 a year, rising to an astonishing £48,720 a year when nursing care was included.
If you are lucky enough to live into retirement, you may want to consider taking advantage of government benefits such as pensions or social security payments. However, if you are younger, you may find yourself having to rely on savings or assets you already hold. In either case, you may need to sell some or all of those assets to fund the costs. This is particularly true if you are planning to use money from your estate to pay for care.
Often, you won’t need to sell anything. You may be able to leave your home to your children or grandchildren. Alternatively, you may be able to take out a mortgage against your home to cover the cost of care. If neither option works for you, you may need to move into residential aged care.
The good news is that there are options available to support you financially during your later years. There are different types of care available, including nursing homes, assisted living facilities, memory care units, hospice care, and adult day care centres.
Depending on where you choose to go, you may qualify for subsidies or discounts.
Can you avoid selling your house to pay for care?
If you or your spouse / civil partner (or certain other individuals) want to continue living at home, then you won’t have to sell your home to pay for care. This is because you are protected under the Care Act. You and/or any other qualified dependents who live in your home also have the right to remain there indefinitely, and cannot be forced to sell it to pay out for your care.
Qualifying dependents include your spouse, civil partner, unmarried partner, children, grandchildren, parents, grandparents, siblings, aunties, uncles, nieces, nephews, cousins, stepchildren, stepsiblings, foster children, and anyone else who lives in your home.
You don't have to sell your property to qualify for support.
However, if you do decide to sell, you might find that you receive a smaller amount of money than you expected. This is because the government doesn’t know how much you paid for your property. And while you are entitled to claim some costs such as mortgage interest payments, council tax and maintenance charges, you aren’t able to claim capital gains tax on the sale price.
So, even though you sold the property for less than what you originally bought it for, you still end up paying tax on the difference.
When might you need to sell your house to pay for care?
You may have to sell your house to fund your care if you’re moving into a residential care home, and there is no one else living there.
If you’ve got a mortgage on your property, you could find yourself having to sell up to pay off the outstanding balance.
However, you don’t necessarily have to sell straight away. There are some ways to avoid selling your house while paying for care.
For example, you may want to consider funding your care from other sources, like savings and private pensions.
But if you choose to use your savings or pension funds to cover your costs, you won’t be able to claim tax relief. So you’ll need to make sure you keep enough money aside to cover your bills.
Other Alternatives:
- If you don't want to put your house on the market for sale, why not rent it out, rather than sell it outright?
Having rental income from your property could generate enough income to pay for your residential accommodation, rather than selling the property.
Another reason for this is that you’d probably qualify for a Care Grant. A Care Grant provides financial support for care costs, regardless of whether you’re receiving state benefits.
This grant is paid directly to the provider of care, so you won’t have to worry about paying the bill yourself. Instead, the provider covers it.
- Equity release lets you take money that's tied up in your home without selling it.
Equity release will allow you to take money out of your house and use it towards your care services.
- Care Annuity
If you do find that you need to pay your own costs then it is worth looking at an immediate needs care annuity, which covers the cost of care. It is basically an insurance policy which you can use to cover your long-term care fee.
An immediate care annuity is a funding option that can give you peace of mind.
Attendance Allowance
You can apply for Attendance Allowance if:
- If you have achieved the State Pension age.
- Have a disease or impairment and you require care or monitoring.
- Have had a disability or condition that has required care or monitoring for at least six months.
Getting Help with Paying for Care – How it Works
The government has announced plans to reform the way people pay for long-term care. They want to make sure people have enough money to cover the cost of looking after themselves or a loved one.
So far, there are three main ways we know about doing this.
- First, the government wants to introduce a 'means tested' system where those with lower incomes will receive support.
- Second, the government intends to change the rules around what counts towards someone's assets.
- And third, the government wants to increase taxes on the richest households.
But there’s a problem…
When the government introduced the current system, the amount of money counted towards someone’s means test depended on whether they had a spare room in their house.
Under proposed reforms, this won’t happen anymore. Instead, the government wants to use a different method to determine eligibility.
It's called a 'means testing' system.
This means that the government will assess your finances, rather than your property. In theory, this could mean that anyone with less than £100,000 worth of assets will qualify for help.
However, there are some problems with this approach. For example, if you live alone, you might have a lot of money tied up in your car or furniture. You might think that this doesn’t count towards your assets because you don’t actually own it.
However, under proposed reforms, this would still count towards your means test.
Similarly, if you rent a flat, you might have lots of money tied up in the building itself. Again, this wouldn’t count towards the means test.
So, what happens next?
After the council has received an estimate of your capital from the financial assessment, you will be deemed either eligible or ineligible for authority funding.
If you are eligible for help, the government will give you a letter telling you how much you can claim. The letter will tell you the maximum amount that you can get. Then, you will either have to apply for benefits yourself or ask your local council to take over.
You’ll need to provide information like your bank account statements, pay slips, tax returns, and proof of your earnings.
Once you’ve done this, you’ll need to wait for the government to process your application.
How does a Means Tested Assessment Work?
A Means Test examines:
- Your normal salary, pensions, or other benefits – Usually, you’ll be required to contribute to the costs of care using a piece of your salary. However, some revenue won’t be taken into account, such as your pay from any paid employment you do.
- Your financial resources – This includes your cash savings and investments, real estate (including property abroad), and company assets. You will be required to cover all of the costs of your care on your own if your capital is more than a specific amount. Your capital is taken into consideration by presuming it generates an income (referred to as the “tariff income”) at a predetermined rate if it is below that threshold but above a lower capital limit.
The National Threshold for Receiving Financial Help with Care Home Costs
People with savings and investments totalling more than £23,250 will be required to cover the whole cost of the residential and nursing care facility. The capital asset limit is different in different parts of the United Kingdom; Government officials determine the capital ceiling.
The threshold is different for people in England and Northern Ireland than it is for those in Wales or Scotland.
The thresholds are (which include the value of your home):
- England and Northern Ireland = £23,250
- Wales = £24,000
- Scotland = £27,250
If the total value of your assets is over the threshold, you will be classed as a ‘self-funder’.
Therefore, if you have cash savings and investments, land and property (including overseas property) that total more than £23,250, you will not be able to access any financial assistance from the government.
However, your home won’t be counted as capital if any of the following people still live there:
- Your husband
- Your wife
- Partner or civil partner
- A close relative who is 60 or over, or incapacitated
- A close relative under the age of 16 who you’re legally liable to support
- Your ex-husband
- Your ex-wife
- Ex-civil partner or ex-partner
- If they are a lone parent/single parent
Your local Trust may choose not to count your home as capital in other circumstances – for example, if your carer lives there.
Here are some examples to show how it works:
‘Lillith, recently widowed and moving into residential care, has under £14,250 left in her bank account. Her house is valued at £150,000. Because there is no one else living on the property once she moves into her residential home, the value of the home is included in her means test. Making her unqualified for any financial help. Therefore, she will have to sell the home to pay for her care.’
‘Stephen and Jane are married. Stephen has mobility problems, meaning he needs residential care. But he wants to continue living at home with his wife, Jane, a carer visiting daily. (Therefore, this is not included in the means test.) By having joint savings of £50,000 they won’t be able to receive help until they hit the threshold of £23,250.’
So is it better to get care in your own home?
The short answer is that receiving care in your own home as opposed to moving into a residential care facility increases your likelihood of becoming eligible for financial assistance.
- First off, only your savings and other assets count toward the means test because your property is not one of them.
- Second, prices can be maintained substantially lower for a longer period of time when care is provided at home because you only pay for what you require (and not for housing).
- Thirdly, by beginning care in your home, you lower the possibility of mishaps and other problems that can force you into residential care earlier than you would like. When you eventually need 24-hour care in your home, the costs may be equal to or even higher than those of a care facility; however, if you're a couple who require care, the prices may be more comparable.
Can I gift my assets to avoid care fees?
Many people wonder “what would happen if they gave everything to their children first. The means test will then reveal that I have nothing!” Unbelievably, the government has already considered this.
The local government will view this as a case of “deliberate deprivation of assets” to avoid care home charges and will presume that you still own the home.
For example, if you transfer/gift ownership of property to one of your children just before you need to enter personal care. The same holds true if you were to unexpectedly give your children a big sum of money, which would deplete your savings.
Even if the financial gift of your personal assets was given several years ago, the local authorities may still consider this your money in your means test.
Consider Independent Financial Advice
Before entering into any scheme or making any significant decision about your finances, you should seek professional legal advice first.
Speaking to a financial adviser about an asset protection trust* or a care payment plan policy that will pay the ongoing monthly care home fees is great to find out what is the most beneficial route. However, financial advice costs money and there are no guarantees. If you do decide to go down this route, it’s worth considering whether your adviser has experience in providing continuing healthcare funding.
No one can say whether an older person has to pay for their continued care until they’ve had a full financial assessment to determine their eligibility. This could mean that they’re eligible for NHS Continuing Healthcare Funding. Bear this in mind before parting funds and commissioning an IFA.
*It’s important that you speak to a legal specialist to ensure the trust is set up correctly.
Entering into a Deferred Payment Agreement (DPA):
If your relative is not eligible to receive NHS Continuing Healthcare Funding and needs to pay for their care themselves, there are many options available to help them.
One option is to enter into a Deferred Payment Arrangement (DPA), where the local authority takes ownership of the costs of their care and pays them directly “Legal Charge”.
You can make arrangements with the local authority to repay the money owed. This might involve selling your house, getting a mortgage, or taking out a loan.
The main aim of the deferred payment scheme is to prevent people from having to sell their homes to fund their care during their lifetime, and it works best if you do not live together. However, if you choose to go down this route, remember that you must repay the amount borrowed plus interest, even if it is not written off.
Are you eligible for a DPA?
The Department of Health and Social Care introduced the Disabled Persons Act 1995 in April 2012, allowing people with disabilities to apply for a Disability Living Allowance (DLA). This replaced Disability Living Allowance (which itself replaced Disability Support Grant), and it provides financial support to help meet the extra costs associated with disability. If you qualify, you could receive up to 80% of your income while receiving care. You must live in England, Wales or Scotland, and you cannot already be receiving benefits such as Personal Independence Payment (PIP).
To be eligible for the DLA scheme, there are several conditions that have to be met. These include criteria relating to your relative’s savings and capital, and whether they are a homeowner (or can provide another asset that can be offered as security instead).
You must also meet certain requirements regarding your relationship with the person being cared for. For example, you cannot be married or cohabiting unless you are separated; you cannot have children together, and you cannot be related within the second degree of kinship. Additionally, you cannot be someone’s caregiver if you are living in the same household, or if you are caring for a family member who is living separately.
There are some exceptions to the rules. For example, if your relative lives abroad, you do not need to be a British citizen or resident. However, you must still be able to prove that you are looking after your relative out of necessity, rather than choice.
If you do not meet the eligibility criteria, you may still be able to claim PIP. If you are disabled and you have been assessed as having severe enough impairments to require personal assistance, you may be entitled to PIP.
Frequently Asked Questions
The problem with trust schemes is that if you put your property in trust and subsequently enter a nursing home or residential care facility, your home is no longer yours; it is no longer a component of your capital and cannot be used to pay for care facility expenses.
You can NOT be made to sell your family home in order to pay for care. However, a lot of people will have to pay for their own care in their elderly years or even contribute to it.
The best approach to prevent your estate from being utilised to pay for care facility bills and to protect your loved ones’ inheritance is to set up an asset protection trust.
Options for asset protection trusts include:
- Protective Property Trust
- Life Interest Trust
- Interest in Possession Trust
