5 ways long-term care could really affect your wealth and the money left to family

Look at the Alzheimer’s Society website, and you will see that there are currently around 850,000 people with dementia in Britain. That means one in six of those aged 80 and above have the condition, and the charity projects the number will rise to 1.6 million by 2040.

It also says that 209,600 people will develop dementia in 2021 – that’s one every three minutes.

It’s a sobering thought and demonstrates why the issue of long-term care has been moving up the political agenda in recent years. In their 2017 General Election campaign, the Conservatives proposed that more people should use the value of their family home to pay for care. It proved controversial and the idea was scrapped within days.

As the cost of care can easily run into tens of thousands of pounds every year, the impact on the amount you eventually leave to your loved ones could be severe.

Read on to discover more about long-term care, its costs, implications on your wealth and what your options might be.

1. Depending on your care needs, the cost could exceed £48,000 a year

To begin, let’s look at the difference between a nursing home and a care home. The former looks after people using registered nurses and care assistants, whereas the latter uses care assistants only.

According to Which?, the average cost of a residential care home in the UK was £34,944 a year in 2019/20, 3% higher than the year before.

In a nursing home with full-time care, the average cost for the year rises to £48,724.

The consumer group points out that the figures include the amount paid by local authorities, which brings the average cost down. This means that those who pay for care themselves – maybe to stay in better quality surroundings – could pay more than the amounts stated above.

2. Costs could vary dramatically depending on where you live

The good news for some, but not so good for others, is that the cost of care is something of a postcode lottery, according to one Which? article. For example, the average fees for nursing homes could range from £735 a week in Northern Ireland to £937 in England, with costs also varying from county to county.

In the south of England, for example, the costs of care without full-time nursing could be more than £14,000 higher than in the north.

Local authorities assess your financial situation and decide whether you should contribute towards your care, and, if so, how much you should contribute. Typically, the authority will provide full financial support for those with assets and income below a set amount.

The NHS may also cover costs if, for example, you qualify for continuing healthcare (CHC) due to complex health needs. The criteria around local authorities and NHS paying for care is complex, so advice should be sought from a financial professional.

3. Your local authority might put a charge on your home to cover long-term care costs

According to carehome.co.uk, around half of care home residents are having to fund themselves.

If you do not have the cash savings to cover the cost of care, the local authority can instead defer the charges under the Care Act of 2015. Known as a “deferred payment agreement” (DPA), this contract pays the local authority when the person being cared for dies and their home is sold.

There are strict rules around this and, typically, a DPA cannot be requested by the authority if certain people are still living in the house, such as your spouse. Therefore, always speak with a financial or legal professional before entering a DPA.

While an agreement may allow you to afford more expensive care, consider the fact that interest can be charged on the amount outstanding, although the authority is limited on the interest rate it can apply.

4. The amount you leave loved ones could be dramatically reduced

As alluded to above, a local authority may take your savings and other assets into account. These could include bank accounts, savings and investments, and any additional properties you own. Joint accounts are generally treated as an equal split.

With average costs running into tens of thousands of pounds a year, funding long-term care could dramatically reduce the amount you leave to loved ones. Whether you have used savings to fund the care or sold a property to repay a local authority, the impact on the amount you pass on could be significant.

5. Deliberate deprivation of assets means gifts made to others could be clawed back

If you try to reduce exposure to care fees by gifting away wealth you could fall foul of the “deliberate deprivation of assets” regulations. Under the rules, a local authority can include the value of any gift you have made when assessing your ability to pay for your care if it suspects it was made to escape care costs.

It is a complicated area, especially as gifting can be a bona fide way of dealing with Inheritance Tax liabilities, so always seek advice from a financial planner.

It may be possible to reduce your exposure to care costs by splitting ownership of assets and using certain trusts. However, this is complicated and professional financial advice must be taken to ensure it is right for you.

In the past, it was possible to buy insurance products to cover the cost of future care, but the market for these has all but dried up. You may be able to purchase an “immediate needs annuity”, which covers the cost of the care home while you are alive, but this can be expensive.

However, you may feel it’s worth it for peace of mind as, if you spend longer than expected in a care home, the cost will not have any additional impact on your wealth.

Always beware of investments that seem to offer protection against care costs, as they could fall under the deliberate deprivation of assets rule.

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.

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