How Do You Pay for Care in Old Age?
The government announced in September that National Insurance tax will rise by 1.25% from April 2022. Boris Johnson says that this will raise £12 billion a year to help cover the 'catastrophic costs' faced by people who need care when they get older. Tax on income from share dividends will also rise by 1.25%.
The social care system is also being changed to help people who have high care needs. These changes include:
- People will only be required to pay up to £86,000 in care costs over their lifetime from October 2023 (but this does not include food and accommodation)
- Personal care costs over £86,000 will be funded by local authorities
- People who have assets between £20,000 and £100,000 will receive means-tested help towards costs from their local authority
- People who have less than £20,000 will not have to pay towards their care from their assets (but might have to contribute from their income)
However, Labour is concerned that many people will still end up selling their homes to pay for care. Shadow chancellor Rachel Reeves commented that "someone with a house worth £186,000 would still have to pay £86,000 even with this cap - and that's before living costs of going into a care home".
How is care paid for in the UK?
Most people will need to contribute some money if they need care in the future. Under the current system, you cannot receive local authority funding for care if:
- You have savings worth more than £23,250
- You own your own home and are moving into a care home
If you need to pay for your own care, you can arrange it yourself or ask the local authority to help you (they may charge a fee to do this).
The costs of care will vary depending on what type of care you need. The NHS provides information about how much you might have to pay.
Will I have to sell my home to pay for care?
One of the biggest worries many people face as they grow older is, will I have to sell my home to pay for care?
Under the current system, you do not need to sell your home as long as you and/or your partner (or certain relatives) are living in it. If you need care at home, you won't have to sell up to pay for this either.
If you need to move into long-term residential care, you may need to sell your home. Your local authority will do a means test to work out how much you should pay towards your care. They may take the value of your home into account during this test as well as other assets, such as savings, investments, pensions and certain benefit entitlements (even if you're not claiming benefits).
How can a lawyer help you prepare for care costs?
An experienced Wills and estate planning solicitor can help you get your final affairs in order, including helping you preserve your assets as far as possible to pass on to your loved ones after you die.
We have a dedicated Wills, probate and estate planning team who can help you in this area. As part of our service, we can help you minimise the amount of Inheritance Tax your estate has to pay after you die (so you can pass on as much to your loved ones as possible) and taking these steps can have the added benefit of reducing the burden of care costs.
Our service includes providing advice about lifetime gifts, which involves transferring property to your loved ones during your lifetime to reduce Inheritance Tax.
Reducing the value of your estate must be done carefully because the local authority can make you pay for care costs if they think you have purposely given assets away to avoid paying care costs - this is called deprivation of assets.
We can make sure any legal estate planning is undertaken legitimately. It's also worth speaking to an independent financial advisor for specific advice about structuring your finances to prepare for care costs.
Visit our Inheritance Tax Planning page for more information.
Managing your finances if you lose mental capacity
Paying for care becomes very difficult if the person who needs care loses their mental capacity (for example, due to an illness such as Alzheimer's disease or a brain injury).
To make sure that your interests are protected, and your care is paid for as efficiently as possible, it is important to have someone you trust to make decisions on your behalf.
Our solicitors can also provide advice about making a Lasting Power of Attorney (LPA) to authorise someone to make decisions about your finances and/or your health and welfare.
Visit our Lasting Powers of Attorney page for more information.