The current position
- A person with capital over £23,250 is self-funded.
- A person with capital between £14,250 and £23,250 receives some State assistance.
- A person with less than £14,250 has their care paid for by the State unless this can be met from their income.
- A Local Authority pays at least £100 – £200 less per week for a care home than a privately paying resident.
- The capital value of a property is completely disregarded if it is occupied by a spouse or civil partner, or relative who is over 60 – there are other disregards.
The new proposals
- Are not yet law and could therefore change.
- Are not due to come in until 2020, owing to fears voiced by local authorities about the potential cost of the cap and that the private insurance market had not developed products as expected to help individuals fund the initial £72,000 as they progressed towards the cap.
- Propose to cap care home fees at £72,000 per person – but this is based on the notional amount a local authority will pay.
- The ‘cap’ does not cover board and lodging costs which will have to be paid on an annual basis – probably around £12,500 p.a.
- The State will provide some financial assistance to people with capital between £17,000 and £123,000.
- Are unlikely to be retrospective.
Steps to consider if a relative is likely to need care
- Request an assessment from the Local Authority. The Local Authority has a duty to assess social and medical needs before they carry out a financial assessment. This may result in your relative receiving a non-means tested contribution to nursing costs.
- Make sure they are in receipt of all relevant benefits – particularly Attendance Allowance (non-taxable and is not means tested).
- Do they qualify for continuing care? If so, care costs are fully covered by the NHS. Very few people receive this but consider asking for a re-assessment if your relative’s condition deteriorates.
- If they are to be self-funded, consider taking taking financial advice – explore the costs of a care plan which can ‘cap’ the capital cost of care. This would involve purchasing an annuity to make up the shortfall between income and cost of care. The income produced can be tax free.
- Check that they have made a Will and Lasting Powers of Attorney.
We can advise you as to the steps you can take to reduce the impact of care home fees on your estate.
We will talk to you about the risks involved in transferring assets to your children and make sure that you understand the consequences of your decisions.
Using a trust to beat care home fees — be careful !
The following question was taken from the Daily Mail of 15th November 2016 and the reply is by their financial expert Tony Hazell. The link to their website can be found at the end of this article.
Question — My friends put their house into a company trust to beat care fees, is this wise?
Some friends have changed their Wills to put their house into a trust fund run by a company, which now owns the house. The house is willed to their children.
They told me they have done this so that, if they end up in a care home, their house cannot be used to pay for care. They can also add savings to this fund.
This cost them around £2,000 to set up and they pay a yearly fee for the firm to store the documents. I find this arrangement very hard to believe, as it does not seem right to me.
Response — by Tony Hazell of This is Money.co.uk
This is an extremely complex and legally contentious area, and my advice is to be very wary.
Local authorities are wise to such schemes and have experts in place to tackle them. They are looking for any clues that you are deliberately seeking to deprive yourself of assets that could be used to pay for your care.
Much will depend on the terms of the trust and the circumstances under which it was set up.
For example, did your friends have a reasonable expectation that they would need care?
There are other potential consequences of putting a home in trust. What if you wish to move home or need access to equity?
A trust could also end up being more expensive than the cost of care, both in terms of fees and the consequences for inheritance tax.
Patricia Mock, tax director at accountant Deloitte, warns: ‘Without the full facts, it is difficult to say exactly how the trust fund works. But my initial reaction is that this arrangement is unlikely to save significant amounts of tax and may actually increase it.’
Let’s assume your friends have transferred their property into a trust, but continue to live in it. Ms Mock says that, if this was done in the past ten years or so, this might have resulted in an IHT charge on the transfer, depending on the value of the house.
I repeat: it’s a complex area and, if your friends own the house jointly and it was worth less than £650,000, it might be covered by exemptions. However, if a house is given away, but the original owners continue to live in it, there are anti-avoidance measures targeted at such planning.
Depending on the precise details of the trust arrangement, the gift might be ineffective for inheritance tax purposes, and the house would be treated as remaining in their estate for IHT and be taxed at 40 per cent on death, depending on available exemptions and reliefs, in addition to a 20 per cent charge when the house went into the trust.
Alternatively, an annual tax charge might apply based on the rental value of the property. The trust itself is also likely to have an IHT bill every ten years at up to 6 per cent, depending on the value of the property and other assets in it.
Ms Mock concludes: ‘Even if the trust has reduced tax, it has brought complexity to their affairs.
‘It is also worth noting that an additional IHT exemption of up to £350,000 for couples for residential property is gradually being introduced, which might not be available to them with the arrangements they’ve put in place.’
In a nutshell, the scheme your friends have entered into will undoubtedly make money for the lawyers and company that set it up — but it could well not do what they hope, and may even leave them and their children worse off.
If you want further information, Age UK has an excellent factsheet dealing with deprivation of assets and means-testing for care home provision.
Please click here for This is Money website with Tony Hazell.