Funding for care fees often means that family members will not inherit, and if they do, their inheritances will be decimated by care fees funding. Some 40,000 houses are dispossessed each year by local authorities to pay for care fees where the local authorities have paid the fees, and the last occupant of the family home has passed on.
Costs of Care
Care fees now cost in the range of £800 to £1,000 per week, and the care fees inflation rises at between 5% and 8% per annum.
Financial Assessment
Individuals undergo financial assessment and their income and capital assets are means tested. If their capital assets (above excluded assets, which include the house if certain relatives, such as a spouse, live there) are above the upper threshold then no Local Authority assistance is available, and you get reduced assistance down to the lower threshold limit. Below the lower threshold, full assistance is given but individual top ups may be required. Threshold limits vary:
England/ N. Ireland Upper £23,250 Lower £14,250
Scotland £22,750 £14000
Wales £22,000 £22,000
(Source: www.direct.gov.uk/en/CaringForSomeone/CareHomes/DG_10031525).
Paying the Fees
Many will have capital assets in excess of these limits, and will have to pay for care home fees to ensure decent accommodation and care. If pensions and investments make up some income (which will mostly be taxable), then the balance of care fees must be found.
The most tax efficient investment that also provides for escalating income and some capital protection on death (if required), is the Immediate Needs Care Annuity. If payments are made directly by the provider to the care home, then these payments are tax free. Moreover, the Plan is portable and can move from home to home. If you move back to your house, some tax will be payable.
Example
87 year old pensioner funding £10,800 per annum escalating at 8% for life. Capital invested £55,800.
Immediate Needs Annuity Income
Capital Amount £55,800 paying £10,800, escalating at 8% p.a.
Year Income Annual Total
Increase Income
1 10,800 864 10,800
2 11,664 933 22,464
3 12,597 1,007 35,061
4 13,604 1,088 48,665
5 14,693 1,175 63,358
Practical Tip
To ensure increasing care fees are payable tax free for life, compare an immediate needs care annuity (tax free return 19.35% in first year in above example) to returns from existing investments. Obtain peace of mind through ‘ring-fencing’ assets and not losing them to care home fees.
By Tony Granger
