Important ways long-term care costs could really affect your wealth

According to the Centre for Ageing Better, there are almost 11 million people in England aged 65 and over. This is nearly one-fifth of the population, and it’s predicted to increase to almost 13 million people over the next 10 years.

In many ways this statistic is a positive reminder that more of us can look forward to a longer life, with the ability to remain active until much later in life. While this is good news, it should be remembered that living longer also carries an increased chance of going into care, and that could have significant financial implications – especially for those living in the south-east.

As a client of HarperLees Financial Planning, we’re probably discussing the issue of later-life care and the need to plan for it. That said, if you would like to know more, or know someone who you feel could benefit from a conversation about long-term care, read on to discover more.

Research shows those in the south-east are most likely to pay for care

A study by pension specialist Just Group reveals that those living in the south-east of England are most likely to pay for later-life care when compared to other parts of the country. It found that 51% of those in the region pay for their care costs, followed by the south-west, where 46% of people are funding their care.

People living in the north-east are least likely to pay, with just 23% of those in care being asked to self-fund.

Having to pay for your care could significantly reduce the amount you leave to loved ones when you die. To understand why, we need to look at the cost of later-life care, and how it’s funded by the government.

Care in the UK costs between £36,600 and £46,100 on average

Broadly speaking there are two different types of residential care you can have:

• A care home – this uses care assistants to look after residents
• A nursing home – this uses registered nurses and care assistants to look after residents.

According to carehome.co.uk, the average weekly cost of a residential care home in the UK is £704 (£36,608 a year) in 2022. The average nursing home cost is £888 per week (£46,176 a year). It’s worth remembering that as this is the “average”, your care costs could be significantly higher.

How much of this you pay depends on the type of care you’re receiving (as in some cases the NHS will fund it) and your wealth. The latter is important as your local authority, which typically provides your care, might ask you to self-fund.

This is usually done using a deferred payment agreement (DPA). When you enter into a DPA, the authority typically agrees to provide care on the understanding that it recovers the costs through the sale of your home when you die.

That said, strict rules apply to DPAs, so for example, your home cannot be sold if your spouse is still living in it.

Even with the government’s new social care cost cap, your wealth may be at risk

New rules were introduced by Boris Johnson in November 2021, which come into force in October 2023.

Under these rules you will only pay for your care if you have assets worth more than £100,000, although this includes the value of your home. If your assets are worth less than £20,000 you will typically not pay anything, and if the value of your wealth is between these figures the amount you pay will be calculated on a sliding scale.

Mr Johnson also announced an £86,000 care costs cap, which in some ways is good news, although there’s a catch. The limit only covers “personal care” such as washing and eating, and not the cost of food, rent or energy bills.

According to the Telegraph, if you’re paying £1,100 a week for your residential care, around £350 is typically spent on personal care. As the remaining £750 would not be considered personal care, it could fall outside the £86,000 limit.

This means that just £18,000 of your £57,000 annual care fees would be classed as personal care. As such, it would take five years to reach your £86,000 maximum, during which time you could spend around £200,000 of your own money to fund your non-personal care costs, including food, rent or energy bills.

As you can see, this could significantly reduce the size of your estate on death and the amount you can then leave to loved ones.

There is good news though. As clients of HarperLees Financial Planning, we can work with you to potentially reduce the effects of long-term care on your wealth. Let’s consider four ways we might be able to help.

1. Checking your investments

Certain types of investments cannot be included by a local authority when it assesses your wealth. While these investments are not used as widely today, you may have historic ones that cannot be taken into account by the authority.

We can check your investments and confirm whether any of your investments are exempt from a local authority’s financial assessment.

2. Financial protection

Generally speaking, protection products that can help with the cost of care are no longer available. That said, we may be able to organise an “immediate needs annuity”, which could help reduce the effects of care costs on your wealth if you’re in a home for longer than expected.

3. Existing financial protection

While you may not realise it, you might have protection products that will help cover the cost of your care. We can confirm whether you have.

4. Avoid deliberate deprivation of assets

While gifting is a bona fide way to deal with an Inheritance Tax (IHT) liability, a local authority might try to claw back the gift during its financial assessment of your wealth. This is done under the “deliberate deprivation of assets” rule.

We can work with you to reduce the chances of any gift you make for IHT purposes falling foul of the rule.

Get in touch

If you would like to discuss your long-term care, or feel someone you know could benefit from a conversation with us, please email us at info@harperlees.co.uk or call 01277 350560.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.